Capital Market Theory Rsm 332 - Week 2

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CAPITAL MARKET THEORY RSM 332 – Week 2
Week 1 – Introduction – Financial Accounting (Review) Week 2 – Financial Markets and Net Present Value Week 3 – Present Value Concepts Week 4 – Bond Valuation and Term Structure Theory Week 5 – Valuation of Stocks Week 6 – Risk and Return – Problem Set #1 Due Week 7* – Midterm (Tuesday*) Week 8 - Portfolio Theory Week 9 – Capital Asset Pricing Model Week 10 – Arbitrage Pricing Theory Week 11 – Operation and Efficiency of Capital Markets Week 12 – Course Review – Problem Set #2 Due

Contact: otto.yung@alumni.utoronto.ca

CAPITAL MARKET THEORY RSM 332 – Week 2
AGENDA 1. 2. 3. 4. 5. Announcements Financial Markets and Net Present Value Survey Results Optional Material (e.g. Cases, Practical Knowledge, News, etc.) Suggestions/Practice for Exam(s)

Contact: otto.yung@alumni.utoronto.ca

Extended Office Hours
Friday, October 19th (11:00am-3:00pm) • Room 6 - TZ6 (Tanz Neuroscience Bldg – 6 Queen’s Park Crescent West)

TBD - Saturday, October 20th • Depends if there is enough demand Thursday, October 25th (5:00pm-7:00pm and 7:00pm-9:00pm) • During regular timeslot • Cover optional material (e.g. cases, practical knowledge, etc.)

Contact: otto.yung@alumni.utoronto.ca

Exams
Midterm (Tuesday, October 23rd – 8:00pm-10:00pm): • EX 100 (Examination Facility – 255 McCaul Street) • 2 Hours

Final (TBA): • 2 Hours
Preparation: • Problem Sets 1 & 2 • Crib Sheet (Start Early and 1-Sided) • Calculator (Silent)

Contact: otto.yung@alumni.utoronto.ca

Tutorials
• Starting - September 19/20/21 • Wednesday (6:00pm-8:00pm) • TZ6 (Tanz Neuroscience Bldg – 6 Queen’s Park Crescent West) • Thursday (11:00am-1:00pm) • RW 110 (Ramsay Wright Laboratories – 25 Harbord Street) • Friday (5:00pm-7:00pm) • RW 110 (Ramsay Wright Laboratories – 25 Harbord Street)



Review: • Midterms and Finals (2008-2011)
Xiaofei Zhao (xiaofei.zhao08@rotman.utoronto.ca) • http://332ta.raykan.com



Contact: otto.yung@alumni.utoronto.ca

Outside of Lecture
Office Hours (Drop-In): • Wednesdays: 4:00pm-6:00pm • 105 St. George Street - Rotman (North Building) Room 413 or 417

Office Hours (Other Days/Times): • Extended Hours • By Appointment

Contact: otto.yung@alumni.utoronto.ca

Corporate Finance: What is Going On?
(3) Firm’s Financial (5) Investors (4) (Financial Institutions, (1) Individuals, Other Firms) (1) (2) (3) (4) (5) Cash raised from investors by selling financial assets Cash invested in real assets (some are intangible) Cash generated by operations Cash reinvested in the firm (retained earnings) Cash repaid to investors (interest, dividends, etc.)

Operations
(2)

Decision Maker

Reference: Alex MacKay

Financial Markets: What is Going On?
Firms
(Users of Capital)

Initial Public Offering (IPO) Secondary Offerings (SEO) Borrowing (Loans, Bonds)

Dividends, $ Repurchases, Interest Payments

$ Market Mechanisms or Market Makers (Stock Exchanges, Banks, Investment Funds, …) $ $

Firms Issue Stock Certificates and Bonds

$

$$$ Invested in Stocks and Bonds

Investors (Providers
of Capital)

Investment Banks help firms make transactions Brokers/Dealers help investors make transactions Reference: Alex MacKay

Financial Theory and Corporate Policy Chapter 1 (Copeland, Weston and Shastri)

Course Reserve

FINANCIAL MARKETS

AND
NET PRESENT VALUE

Consumption Plan and Investment Rule
Consider 1 period problems Assumptions: • No uncertainty • One period (two dates), consumptions occur on date 0 and date 1 • A consumer is endowed with initial wealth (Y0) on date 0, and will receive income (Y1) on date 1 • Simple interest rate (r)

Date 0
Reference: Raymond Kan Contact: otto.yung@alumni.utoronto.ca

Date 1

Consumption Plan and Investment Rule
4 CASES • Case I: • Case II: No Capital Market, No Production Opportunities With Capital Market, No Production Opportunities

• Case III: No Capital Market, With Production Opportunities • Case...
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