24-07-2014, 03:22 PM
The Analysis of Equity Risk
and the Cost of Capital
The Analysis.ppt (Size: 632.5 KB / Downloads: 10)
What you will learn from this chapter
That precise measures of the cost of capital are difficult to calculate
What risk is
How business investment can yield extreme (high and low) returns
How diversification reduces risk
Problems with using the standard Capital Asset Pricing Model and other beta technologies
The difference between fundamental risk and price risk
The determinants of fundamental risk
The determinants of price risk
Building in a Margin of Safety
Use a high discount rate in evaluating a BUY; use a low discount rate in evaluating a SELL
Be conservative (for a BUY) or optimistic (for a SELL) in forecasting