上海对外贸易学院
2005 年度精品课程
《证券投资分析》
课程建设成果之三
教
师
教
案
（2005 ~2006 学年第 二 学期）
课 程 名 称
专
业
Security analysis
金融学（中加合作）和财务管理（中加合作）
课 程 类 别
专业核心课
授 课 班 级
03 级金融中加、财管中加
主 讲 教 师
凌婕
职
称
使 用 教 材
副教授
Investment Analysis and Portfolio Management,
by Frank K. Reilly and Keith C. Brown, CITIC
Publishing House.
目
录
课程基本信息...........................................................................................................................3
Chapter 1
Investment Setting ....................................................................................................4
Chapter 2
Organization and Functioning of Securities Markets ........................................10
Chapter 3
Security-Market Indicator Series .....................................................................18
Chapter 4
An introduction to Derivative Markets and Securities .......................................24
Chapter 5
Analysis of financial statement .............................................................................32
Chapter 6
An introduction to security valuation ....................................................................41
Chapter 7
Bond Fundamentals ...............................................................................................49
Chapter 8
The analysis and valuation of bonds .....................................................................57
Chapter 9
Stock-Market analysis .........................................................................................67
Chapter 10
Industry analysis ..................................................................................................75
Chapter 11
Company analysis and stock valuation ................................................................85
2
课程基本信息
课程名称 Security analysis
课程类别
课程代码
学分
3
专业核心课
总学时：60 学时
讲课：50-54 学时
上机：0 学时
实验：0 学时
授课专业
金融学专业（中加合作）
财务管理专业（中加合作）
授课班级
03 级金融学、财务管理学专业
任课教师
凌婕
职称
副教授
COURSE DESCRIPTION AND OBJECTIVES
教学目的
This course extends topics covered in the Money and banking course.
和要求
It relates the mechanics underlying direct and indirect finance with
emphasis on the former, especially in the valuation of claims.
1. Understand the pricing model of securities, both of the equity
securities and debt issues.
教学重
2. Understand the factors influencing the value of securities.
点、难点
3. Understanding the basic ideas of investment management.
1. Tom Copeland, Tim Koller, and Jack Murrin, Valuation: Measuring
and Managing the Value of Companies, John Wiley & Sons, 3rd
edition, 2000.
2. Investment tutorial
3. McKinsey & Co., Tim Koller, Marc Goedhart and David Wessels,
Valuation: Measuring and Managing the Value of Companies,
教材和参
Fourth Edition, John Wiley & Sons, 2005
考书
.
3
Chapter 1
Investment Setting
学 时 ： 4 sections
章节（单元、专题）
Chapter 1
内
容
Investment Setting
Understanding the rationale for Investment
Understanding the measurement of return and risk
Understanding the determination of expected rate of return and risk
Understanding the relationship of return and risk
重点： 1.determination of expected rate of return and risk
2. the relationship of return and risk
难点： 1.determination of expected rate of return and risk
2. the relationship of return and risk
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
课件来源
Self-designed
段
学
时
4 sections
授课
内容
教学
目的
与要
求
教学
重点
与难
点
1. Understanding the rationale for Investment
教学 2. Understanding the measurement of return
内容
and risk
与 3. Understanding
the
determination
of
时间
expected rate of return and risk
安排 4. Understanding the relationship of return and
risk
0.5 section
1 section
1section
0.5 section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
讲课
I . Rationale for Investment
提纲
与板
A. Income streams and spending needs do not coincide
书设
1. If income is greater than spending – people tend to invest the
计
surplus
2. If spending is greater than income – people tend to borrow to
cover the deficit
B. People would be willing to forgo current consumption only if
they can achieve greater consumption in the future.
4
C. The rate of exchange between future consumption and present
consumption is the pure rate of interest. Market forces
determine this rate.
D. Investment is the current commitment of funds for a period of time
to obtain a future flow of funds that will compensate the investor
for the time the funds are committed, for the expected rate of
inflation, and for the uncertainty of the future flow of funds.
II.
Measures of Return and Risk
A. Measures of Historical Rates of Return
1. Holding Period Return (HPR) - the total return from an
investment, including all sources of income, for a given period
of time. A value of 1.0 indicates no gain or loss.
HPR=
EndingValueof Investment(includingcashflowduringtheholdingperiod)
BeginningValueof Investment
2. Holding Period Yield (HPY) - the total return from an
investment for a given period of time stated as a
percentage.
HPY = HPR - 1
Annual HPR = HPR1/n
where n is the number of years the investment is held
B. Computing Mean Historical Returns
1. Mean rate of return - the average of an investment's returns
over time.
2. Single Investment
a. Arithmetic Mean (AM) - a measure of mean return equal to
the sum of annual returns divided by the number of years.
Arithmetic Mean = Σ HPY/n
b. Geometric Mean (GM) - the nth root of the product of the
annual holding period returns for n years, minus one (1).
GM =[πHPR]1/n - 1
where π = the product of the annual holding period returns,
5
i.e., (HPR)x(HPR2) x...(HPRn)
3. A Portfolio of Investments – The mean historical rate of return
for a portfolio of investments is measured as the weighted
average of the HPYs for the individual investments in the
portfolio.
C. Calculating Expected Rates of Return
1. Risk - the uncertainty that an investment will earn its expected
rate of return.
2. Probability – the likelihood of an outcome
3. To compute the expected rate of return, the investor assigns
probability values to all possible returns. These probabilities
range from zero (no chance) to one (complete certainty).
4. Expected Return
n
Expected Return = ∑ (Prob. of Return) x (Possible Return)
i =1
n
E(R i ) = ∑ (Pi )(R i )
i =1
Risk aversion - the assumption that most investors will choose
the least risky alternative, all else being equal and that they will not
accept additional risk unless they are compensated in the form of higher
return.
II. Measuring the Risk of Expected Rates of Return
1. Variance - a measure of risk equal to the sum of the probability
of return times the squares of a return's deviation from the
mean.
n
Variance = ∑ (Prob.)(Possible Return - Expected Return) 2
i =1
n
σ 2 = ∑ (Pi )[R i - E(R i )]2
i =1
2. Standard Deviation (σ) - a measure of risk equal to the square
root of variance.
3. Coefficient of variation (CV) - a measure of relative variability
that indicates risk per unit of return. It is used to compare
alternative investments whose rates of return and standard
deviation vary widely.
6
CV =
Standard Deviation of Returns
Expected Rate of Return
Determinants of Required Rates of Return
A. Rates of Return - vary over time and across investments (Exhibit
1.5).
B. The Real Risk-Free Rate (RRFR) - the basic interest rate
assuming no inflation or uncertainty.
1. Factors that influence this rate
A. Time preference for consumption of income
B. Investment opportunities in the economy.
2. This real risk-free rate is determined by the real growth rate of
the economy that is
impacted by growth rate of labor
force, hours worked, and rate of productivity
3. A positive relationship exists between the real growth rate in
the economy and the
RRFR
C. The Nominal Risk-Free Rate (NRFR) – incorporates inflation
1. Note the substantial variation in government T-bill rates over
time (Exhibit 1.6)
2. Factors that influence NRFR
A. Conditions in the Capital Markets - Relative ease or
tightness (this is a short-run phenomenon)
B. Expected Rate of Inflation - this is a major influence
(Exhibit 1.6)
Nominal RRFR = (1 + RRFR)(1 + Expected Rate of Inflation) -1
RRFR =
(1 + Nominal RFR)
-1
(1 + Rate of Inflation)
3. The Common Effect – all factors discussed thus far affects all
investments equally irrespective of type or form.
D. Risk Premium – varies from asset to asset and is responsible for
differences in rates of return between assets at a certain point in
time. The major determinants of the risk premium are:
1. Business risk – uncertainty of income flows caused by the
nature of a firm’s business. Sales volatility and operating
leverage determine the level of business risk
7
2. Financial risk – uncertainty caused by the use of debt financing
3. Liquidity risk - the inability to buy or sell an asset quickly with
little price change.
4. Exchange rate risk - the uncertainty of returns on securities
acquired in a foreign currency.
5. Country risk - uncertainty due to the possibility of major political
or economic change in the country where an investment has
been made.
E. Risk Premium and Portfolio Theory
- The relevant risk measure for an individual asset is its
comovement with the market
portfolio
F. Fundamental Risk versus Systematic Risk
- Fundamental risk comprises business risk, financial risk, liquidity
risk, exchange rate risk, and country risk, while systematic risk
refers to the portion of an individual asset’s total variance
attributable to the variability of the total market portfolio
G. Required Rate of Return – minimum acceptable rate of return
from an investment.
Determined by RRFR, NRFR, and risk
premium
2. Relationship between Risks and Return(students’ self-studying)
A. Security Market Line (Exhibit 1.7)
B. Movements along the SML - A movement along the line indicates
a change in the level of risk for a given company or asset.
(Exhibit 1.8)
C. Changes in the Slope of the SML - A change in the slope of the
SML indicates a change in the attitudes of investors toward
risk--i.e., a change in the required risk premium for a given asset
or asset class. (Exhibit 1.10)
Shift in the SML (Exhibit 1.8)
Can be caused by a change in any of the following:
1. expected real growth in the economy
2. capital market conditions
3. expected rate of inflation.
D. Summary of Changes in the Required Rate of Return
8
Class Discussion:
Questions on P 29: No.10. 13.
本章
Learning after class:
思考
1. Appendix : Computation of Variance and Standard Deviation
题
2. homework
a. Problems on P 30-31No.5—12
b. Questions on P 29 No.6-9; 13-15
课后 1. 学生对收益和风险的构成要素的理解是一个难点。
小结 2. 特别要强调收益和风险的各种构成要素与现实经济变量之间的联系。
9
Chapter 2
Organization and Functioning of Securities Markets
学 时 ： 5 section 硕
Chapter 2
Organization and Functioning of Securities
Markets
Questions to be answered:
1. What is the purpose and function of a market?
2. What are the characteristics that determine the quality of a market?
3. What is the difference between a primary and secondary capital
market and how do these markets support each other?
4. What are the national exchanges and how are the major security
markets becoming linked (what is meant by “passing the book”)?
5. What are the regional stock exchanges and the over-the-counter
(OTC) market?
6. What are the alternative market-making arrangements available on
the exchanges and the OCT market?
7. What are the major types of orders available to investors and market
makers?
8. What are the major functions of a specialist on the NYSE and how
does the specialist differ from the central market maker on other
exchanges?
9. What are the major factors that have caused the significant changes
in markets around the world in the past 10 to 15 years?
10. What are some of the major changes in world capital markets
expected over the next decade?
Emphasis：
1. the definition of market and the quality of good market
2. the organization of security market,both the primary market and
secondary market
3. the operation of major world market: NYSE and NASDAQ
4. the development and operation of Chinese stock market
5. the major activities in the secondary market: margin purchase and
short selling
Difficulties：
1. the purpose and function of a market
2. the characteristics that determine the quality of a market
3. understanding the procedure of margin purchase and short selling
方法：讲授法、课堂讨论法现场教学法、自学指导法
手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
章节（单元、专题）
授课
内
容
内容
教学
目标
与要
求
教学
重点
与难
点
教学
方法
与手 使用多媒体
段
课件来源
学
时
Self-designed
5 sections
10
教学
内容
与
时间
安排
1. the definition of market and the quality of
good market
2. the organization of security market,both the
primary market and secondary market
3. the operation of major world market: NYSE
and NASDAQ
4. the development and operation of Chinese
stock market
5. understanding the procedure of margin
purchase and short selling
6. Discussion
0.5 section
0.5 section
1section
1 section
1 section
1 section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
I.
What is a Market?
A market is a means through which buyers and sellers are brought
together to aid in the transfer of goods and/or services.
讲课
提纲
与板
书设
计
Characteristics of a "Good" Market
1. Timely and accurate information on price and volume of past
transactions
2. Liquidity (ability to buy or sell quickly at a price close to prior
price)
a. Price continuity – prices do not change much from one
transaction to another unless significant new information
becomes available
b. Depth – several potential buyers and sellers must be
willing to trade at prices above and below the current
market price
3. Low transaction costs (internal efficiency)
4. Rapid adjustment of price to new information (external
efficiency or informational efficiency)
Organization of the Securities Markets
1. Primary markets are those where new securities are sold and
funds go to issuing unit
2. Secondary markets are those where outstanding securities
are bought and sold by investors. The issuing unit does not
receive any funds in a secondary market transaction
11
II.
Primary Capital Markets
A. Government Bond Issues
1. Treasury Bills – negotiable, non-interest bearing securities
with original maturities of one year or less
2. Treasury Notes – original maturities of 2 to 10 years
3. Treasury Bonds – original maturities of more than 10 years
B. Municipal Bond Issues
1. Method of sale
a. Competitive bid – usually involves sealed bids
b. Negotiated sale – involves contractual arrangements
between underwriters and issuers
c. Private placement – involves sale of securities directly to a
small group of investors or institutional investors
2. Underwriting function – the investment banker purchases the
entire issue from the issuer and resells the security to the
investing public.
The firm charges a commission for
providing this service. For municipal bonds, the underwriting
function is performed by both investment banking firms and
commercial banks
a. Origination – involves the design of the bond issue and
initial planning
b. Risk-bearing – refers to the underwriter’s risk of reselling
the securities to the investing public
c. Distribution – selling to investors with the help of selling
syndicate consisting of other investment banking firms
and/or commercial banks if the issue is very large
3. Types of municipal bonds
a. General obligation (GO) bonds – backed only by the full
faith and credit of the issuer and not by any specific
revenue source
b. Revenue bonds – specific revenue source backs the
bonds
C. Corporate Bond and Stock Issues
1. Types of new issues
a. Seasoned new issues – new shares offered by firms that
already have stock outstanding
b. Initial public offerings (IPOs) – a firm selling its common
stock to the public for the first time
D. Relationship with investment bankers
1. Negotiated arrangement
2. Competitive bid arrangement
12
3. Best-efforts arrangement
E. Introduction of Rule 415 (Shelf registration) – allows large
firms to register security issues and sell them piecemeal
during the following two years
F. Private Placement and Rule 144A – the company designs an
issue of securities with the assistance of an investment
banker and sells it to a small group of investors (individual
or institutional)
III.
Secondary Financial Markets
A. Importance of Secondary Markets – enhances liquidity of the
securities
B. Secondary Bond Markets
1. Secondary Markets for U.S. Government and Municipal
Bonds – market makers are banks and investment firms
2. Secondary Corporate Bond Market – OTC (over-the-counter
market)
C. Financial Futures Markets
D. Secondary Equity Markets
1. Securities Exchanges
a. Alternative Trading Systems
− Pure auction market
− Dealer market
b. Call versus Continuous Markets – In a call market, trading
for individual stocks takes place at specified times, while,
in a continuous market, trades occur at any time the
market is open
2. National Stock Exchanges (see Exhibit 4.3 for volumes)
a. New York Stock Exchange (NYSE)
b. American Stock Exchange (AMEX)
c. Tokyo Stock Exchange (TSE)
d. London Stock Exchange (LSE)
3. Trends
a. New Exchanges in Emerging Economies such as Russia,
China, Hungary, Peru, etc.
b. Consolidations in Developed Markets - driven by
economies of scale and technology
c. The Global Twenty-Four-Hour Market – made possible by
13
advances in technology
E. Regional Exchanges and the Over-the-Counter Market
1. Regional Securities Exchanges
2. Over-the-Counter (OTC) Market
a. Size of the OTC market – largest segment of the U.S.
secondary market
b. Operation of the OTC – referred to as a negotiated market
in which investors directly negotiate with dealers
c. The NASDAQ system – automated, electronic quotation
system for the OTC market
d. Listing Requirements for NASDAQ – less stringent than
that of the NYSE
e. A Sample Trade
f. Changing Dealer Inventory
3. Third Market – OTC trading of shares listed on an exchange
4. Fourth Market – direct trading of securities between two
parties with no broker intermediary
IV.
Detailed Analysis of the Exchange Market
A. Exchange Membership
1. Specialists (will be discussed later)
2. Commission brokers – employees of a member firm who buy
or sell for the customers of the firm
3. Floor brokers – independent members of an exchange who
act as brokers for other members
4. Registered traders –members of the exchange who buy and
sell for their own account
B. Types of Orders(illustrated by number of examples)
1. Market orders
2. Limit orders
3. Short sales
4. Special orders
a. Stop loss order
b. Stop buy order
5. Margin Transactions
a. Initial margin
b. Maintenance margin
c. Margin call
d. Examples and illustrations
− The procedure of margin transactions
− How to calculate the margin in the margin transactions
− To determine the loss or profit in any specific business
C. Exchange Market Makers
14
1. U.S. Markets (Specialists)
a. Functions of the specialist
− broker for limit orders and special orders
− dealer to maintain "orderly" market (market maker)
b. Specialist income
− Income derived from both functions depends upon the
type of stocks.
− Rates of return are large.
2. Tokyo Stock Exchange (TSE)
a. Regular Members
b. Saitori
3. London Stock Exchange (LSE)
a. Brokers
b. Jobbers
V.
Changes in the Securities Markets – prompted by the significant
and rapid growth of trading by large financial institutions
A. Evidence and Effect of Institutionalization
1. Average Size of Trades
2. Growth of Block Trades (see Exhibit 4.10)
3. Major effects of institutionalization
a. Negotiated (competitive) commission rates
b. The influence of block trades
c. The impact on stock price volatility
d. The development of a National Market System (NMS)
B. Negotiated Commission Rates
1. Background
a. Minimum commission schedule
b. Reaction to high commissions (give-ups & the use of the
third and fourth market)
2. Negotiated Commissions (allowed on all transactions as of
May 1, 1975)
C. The Impact of Block Trades
1. Block Trades on the Exchanges
2. Block Houses
3. Example of a Block Trade
D. Institutions and Stock Price Volatility
(No empirical support for the relationship between trading by
large financial institutions and stock price volatility)
E. National Market System (NMS)
1. Centralized Reporting of all Transactions
15
2. Centralized Quotation System
a. Intermarket Trading System (ITS)
3. Central Limit Order Book (CLOB)
4. Competition Among Market Makers (Rule 390)
F. New Trading Systems
1. Super Dot
2. Display Book
3. Opening Automated Report Service (OARS)
4. Market Order Processing
5. Limit Order Processing
6. Global Market Changes
a. London Stock Exchange (LSE) - Effects of the "Big Bang"
b. Tokyo Stock Exchange (TSE) – more competition
G. Global Market Changes
1. NYSE Off-Hours Trading – prompted by erosion of NYSE’s
market share
2. Listing Foreign Stocks on the NYSE – a priority for the NYSE
H. Future Developments
1. Continuing Consolidation of Security Exchanges
2. More Specialized Investment Companies
3. Changes in the Financial Services Industry
a. Financial supermarkets
b. Financial boutiques
2. Trading in Cybermarkets
Class Discussion:
Problems on P 147: No.1-5
Class Discussion problems:
1. Problems: Margin Purchase and Short Selling
本章
思考
题
Suppose you buy a round lot of Maginn Industries stock on 55%
margin when that stock is selling at $20 a share. The broker charges a
10% annual interest rate, and commissions are 3% of the total stock
value on both the purchase and sale. A year later you receive a $0.50
per share dividend and sell the stock for $27. What is your rate of
return on the investment?
2. Problems: Margin Purchase and Short Selling
You decide to sell short 100 shares of Charlotte Horse Farms when it
is selling at its yearly high of 56. Your broker tells you that your margin
requirement is 45% and that the commission on the purchase is $155.
16
While you are short the stock, Charlotte pays a $2.50 per share
dividend. At the end of 1 year, you buy 100 shares Charlotte at 45 to
close out your position and are charged a commission of $145 and 8%
interest on the money borrowed. What is your rate of return on the
investment?
3. Problem: Actual Margin in short selling
Through a margin account, Cindy sells short 200 shares of DMM
stock for $50 per share. The margin requirement is 45% and the
maintenance requirement is 25%.
If DMM stock subsequently rises to $60per share, What is Cindy’s
actual margin ?
At what price, Cindy would receive a margin call from the broker?
Learning after class:
1. Appendix : Characteristics of Developed and Developing
Markets Around the World
2. Homework
a. Problems on P 147-N48 No.5-7
b. Questions on P 146 No.1-21
1. 学生对市场的功能以及评价好市场与坏市场的因素理解是一个难点。
2. 特别要强调 margin transaction 的操作过程，以及各种比率和盈亏的
课后
计算，尤其要结合中国证券市场的实际，讲解有关 short sell 的概念、
小结
操作手法，以及对现实中一些现象的理解，如券商的财务困境、挪用
保证金、挪用国债的实质以及内涵风险。
17
Chapter 3
Security-Market Indicator Series
学 时 ： 6 sections
Chapter 3
授课 章节（单元、专题）
内容 内
容
Security-Market Indicator Series
Questions to be answered:
1. What are some major uses of security-market indicator series
(indexes)?
2. What are the major characteristics that cause alternative indexes to
differ?
教学
3. What are the major stock-market indexes in the United States and
目标
globally and what are their characteristics?
与要
4. What are the major bond-market indexes for the United States and
求
the world?
5. What are some of the composite stock-bond market indexes?
6. Where can you get historical and current data for all these indexes?
7. What is the short-run relationship among many of these indexes in
the short run (monthly)?
Emphasis：
1. Uses of security-market indexes
2. Differentiation factors in constructing market indexes
3. Stock-market indicator series
4. Composite stock-bond indexes
教学 5. Comparison of indexes over time
重点
与难 Difficulties：
点
1. the definition and function of a market index
2. the factors that construct the market indexes
3. understanding the method constructing the market indexes and the
performance of the indexes
4. understanding the constructing of equal-weighed index
5. the development of market index in the future
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
段
1.
教学
2.
内容
与
3.
时间
安排
4.
课件来源
学
时
Uses of security-market indexes
Differentiation factors in constructing market
indexes
Stock-market indicator series: Dow Jones
industries and S&p500
Composite stock-bond indexes
Self-designed
6 sections
1 section
1.5 section
1section
0.5 section
18
5. Comparison of indexes over time
6. Discussion and Case Study
1 section
1 section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
I.
Uses of Security Market Indexes
ƒ
ƒ
ƒ
ƒ
ƒ
II.
As benchmarks to evaluate the performance of professional
money managers
To create and monitor an index fund
To measure market rates of return in economic studies
For predicting future market movements by technicians
As a substitute for the market portfolio of risky assets when
calculating the systematic risk of an asset
Differentiating Factors in Constructing Market Indicator Series
A. The Sample – should be representative of the total population
ƒ Size
ƒ Breadth
ƒ Source
讲课
提纲
与板
书设
计
B. Weighting of Sample Members
ƒ price-weighted series
ƒ value-weighted series
ƒ unweighted series
C. Computational Procedures
ƒ arithmetic average
ƒ compute an index and have all changes, whether in price or
value, reported in terms of the basic index
ƒ geometric average
III.
Stock-Market Indicator Series
A. Price Weighted Series
1. Dow Jones Industrial Average – oldest and best-known of the
stock market indexes
a. Computation of DJIA – sum of the prices of 30 blue-chips
stocks divided by adjusted divisor
b. Criticisms of DJIA
ƒ Limited to 30 non-randomly selected blue-chip stocks
ƒ Includes mostly large, mature, blue-chip companies
ƒ The divisor needs to be adjusted every time one of the
19
companies in the index has a stock split
ƒ Biased in favor of high-priced stocks
c. Dow Jones also publishes a 20 stock transportation
average and a 15 stock utility average
2. Nikkei-Dow Jones Average (Nikkei Stock Average Index)
a. 225 stocks on the First Section of the TSE
b. Criticisms of Nikkei-Dow
ƒ Is a price-weighted series. Hence, it suffers from the
same shortcomings of the DJIA
ƒ Stocks included in the index comprise only about 15
percent of all stocks on the First Section of the Tokyo
Stock Exchange
B. Value Weighted Series
1. General computational procedure (See Exhibit 5.3)
2. Automatic adjustment for stock split
3. Examples of value weighted series (See Exhibit 5.5)
a. Standard and Poor's Indexes
b. New York Stock Exchange Index
c. NASDAQ Series
d. American Stock Exchange Market Value Index
e. Wilshire 5000 Equity Index
f. Russell Indexes
g. Financial Times Actuaries Indexes
h. Tokyo Stock Exchange Price Index
i. FT-Actuaries World Indexes
j. Morgan Stanley Capital International Indexes
k. Dow Jones World Stock Index
l. Euromoney-First Boston Global Stock Index
m. Salomon-Russell World Equity Index
C. Unweighted Price Indicator Series
1. General computational procedure – all stocks in an
unweighted index carry equal weight regardless of their price
or market value
2. Examples of unweighted series
a. Value Line Averages
b. Financial Times Ordinary Share Index
3. Arithmetic and Geometric Means (See Exhibit 5.8)
D. Global Equity Indexes
1. FT/S&P - Actuaries World Indexes (See Exhibit 5.9)
2. Morgan Stanley Capital International (MSCI) Indexes (See
Exhibits 5.10 and 5.11)
3. Dow Jones World Stock Index (See Exhibit 5.12)
20
4. Comparison of World Stock Indexes – strong positive
correlation between the three series mentioned above
E. Bond-Market Indicator Series
1. Investment-Grade Bond Indexes (See Exhibit 5.13)
a. Lehman Brothers
b. Merrill Lynch
c. Ryan Treasury
d. Salomon Smith Barney
2. High-Yield Bond Indexes
a. U.S. High-Yield Bond Indexes (See Exhibits 5.13 and 5.14)
b. Merrill Lynch Convertible Securities Indexes
3. Global Government Bond Market Indexes
IV.
Composite Stock-Bond Indexes
A. Merrill Lynch-Wilshire U.S. Capital Markets Index (ML-WCMI)
B. Brinson Partners Global Security Market Index (GSMI)
Mean Annual Security Risk-Returns and Correlations
A. There are clear differences among the series due to different
asset classes (e.g., stocks versus bonds) and when there are
different samples within asset classes
B. There is a positive relationship between the rate of return on an
asset and its measure of risk
C. The security market indexes can be used:
ƒ to measure the historical performance of an asset class
ƒ as benchmarks to evaluate the performance of a money
manager for a mutual fund, a personal trust, or a pension plan
Class Discussion:
Problems on P 177: No.1， 3
Class Discussion problems:
1. Example of Change in DJIA Divisor When a Sample Stock
Splits
本章
After Three-for One
思考
Before Split
Split by Stock A
题
Prices
Prices
A
30
10
B
20
20
10
10
C
60 / 3 = 20
40 / X = 20
V.
21
X = 2 (New Divisor)
2. Problems: Demonstration of the Impact of Differently Priced
Shares on a Price-Weighted Indicator Series
PERIOD T+ 1
.
Period T
Case A
Case B
A
100
110
100
B
50
50
50
30
30
33
C
Sum
180
190
183
Divisor
3
3
3
Average
60
63.3
61
Percentage Change
5.5%
1.7%
3. Problem: Criticism of the DJIA
4 . Problem: equal weighed index
Learning after class:
3. Appendix : Foreign stock-market indexes
4. Homework
a. Problems on P 176-177
No.4-7
b. Questions on P 1175-176 No.1-15
Case Studying:
„ The S&P 500 Equal Weight Index has been attracting the
attention of many investors lately.
{ Since the market peak in March 2000, it has outperformed
its famous market capitalization weighted cousin, the S&P
500 Index, by a wide margin (see Table 1).
{ Even since 1990, the S&P 500 Equal Weight Index has
outperformed the market capitalization weighted S&P 500
Index (see Table 2).
„ It’s worth taking a close look at the differences between these
two indexes and evaluating whether the Equal Weight Index is
superior.
„ Performance: S&P500 vs. S&P Equal Weight Index
22
Question :
1. How is the S&P 500 Equal Weight Index different from the S&P 500
Index?
2. Is Equal Weight Index better ?
3. Features of Equal Weighted Index
4. Does the S&P 500 always underperform ?
1. 学生对 market series 的概念、作用以及现实中使用状况的理解是一个
难点。
2. 特别要强调 piece-weighed and value-weighed 两种指数的构成方法
的区别，以及对某一组合业绩的影响，以及各种比率和盈亏的计算，
课后
尤其要结合中国证券市场的实际，讲解有关 market series 的概念、操
小结
作手法，以及对现实中一些现象的理解，如券商的发布的各种市场指
数、交易所公布的各种指数等，他们在功能上的差异。
3. 关于 S&P500S&P 和 equal-weighed 两种指数在上世纪 90 年代末至
本世纪初截然不同的业绩表现的案例分析，非常有助于学生理解指数
的概念、构成及其功能。
23
Chapter 4 An introduction to Derivative Markets and Securities
学 时 ： 4 sections
Chapter 4
An introduction to Derivative Markets and
Securities
Questions to be answered:
1. What distinguishes a derivative security such as a forward, futures,
or option contract, from more fundamental securities, such as stocks
and bonds?
2. What are the important characteristics of forward, futures, and option
contracts, and in what sense can the be interpreted as insurance
policies?
3. How are the markets for derivative securities organized and how do
they differ from other security markets?
4. What terminology is used to describe transactions that involve
forward, futures, and option contracts?
5. How are prices for derivative securities quoted and how should this
information be interpreted?
6. What are similarities and differences between forward and futures
contracts?
7. What do the payoff diagrams look like for investments in forward and
futures contracts?
8. What do the payoff diagrams look like for investments in put and call
option contracts?
9. How are forward contracts, put options, and call options related to
one another?
10. How can derivatives be used in conjunction with stock and Treasury
bills to replicate the payoffs to other securities and create arbitrage
opportunities for an investor?
11. How can derivative contracts be used to restructure cash flow
patterns and modify the risk in existing investment portfolios?
Emphasis：
1. Overview of derivative market
2. Investing with derivative securities
3. The relationship between forward and option contracts
4. An introduction to the use of derivatives in portfolio management
章节（单元、专题）
授课
内
容
内容
教学
目标
与要
求
教学
重点
与难
Difficulties：
点
1. the language and structure of forward and future markets
2. the basic nature of derivative investing
3. basic payoff diagrams for forward contracts
4. basic payoff diagrams for call and put options
24
5. put-call-parity: spot, forward parity
6. restructuring asset portfolios with forward contracts
7. protecting portfolio value with put options
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
课件来源
Self-designed
段
学
时
4 sections
1. Overview of derivative market
教学
2. Investing with derivative securities
内容
3. The relationship between forward and
与
option contracts
时间
4. An introduction to the use of derivatives in
安排
portfolio management
0.5 section
1
section
1section
1.5 section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
I. Introduction of derivative markets and securities
i. Overview of Derivative Markets
讲课
提纲
与板
书设
计
A. The Language and Structure of Forward and Futures Markets
1. Forward Contracts
2. Terminology
3. Spot vs. forward markets
4. Advantages and disadvantages
B. Futures Contracts
1. Standardized agreement terms
2. Comparison with forward contracts
3. Terminology
4. Popular contracts and exchanges (see Exhibit 21.2)
C. Interpreting Futures Price Quotations: An Example
D. The Language and Structure of Option Markets
1. Option Contract Terms
2. Option Valuation Basics
3. Option Trading Markets
4. Options versus forward/future contracts
5. Popular contracts and exchanges (see Table 21.5)
25
E. Interpreting Option Price Quotations: An Example
ii.
Investing with Derivative Securities
A. The Basic Nature of Derivative Investing
B. Basic Payoff Diagrams for Forward Contracts
1. Symmetric payoffs
2. Zero-sum games
C. Basic Payoff Diagrams for Call and Put Options
1. Asymmetric payoffs
2. Differences between call and put payoffs
3. Options are directional views on movements in underlying
security prices
D. Option Payoff Diagrams: An Example
1. Options and Leverage
iii. The Relationship Between Forward and Option Contracts
A. Put-Call-Spot Parity
B. Put-Call Parity: An Example
C. Creating Synthetic Securities Using Put-Call Parity
D. Adjusting Put-Call Spot Parity For Dividends
E. Put-Call-Forward Parity
iv. An Introduction to the Use of Derivatives in Portfolio
Management
A. Restructuring Asset Portfolios With Forward Contracts
1. Tactical asset allocation
2. Two methods of restructuring
3. Benefits
B. Protecting Portfolio Value With Put Options
1. Protective put position
2. Portfolio insurance
C. An Alternative Way to Pay for a Protective Put
26
1. Collar agreement
II.
FORWARD AND FUTURES CONTRACTS
i. An Overview of Forward and Futures Trading
Forward and futures contracts are the most straightforward form of
derivative instruments because they allow an investor to lock in the
purchase or sales price of a transaction that will not be completed until a
later date
A.
1.
2.
3.
Terminology
Clearinghouse
Margin
Settlement price
B. Futures Contract Mechanics
C.
1.
2.
3.
4.
5.
Comparing Forward and Future Contracts
Relationship between buyer and seller
Type of exchange
Design flexibility
Credit risk
Liquidity risk
ii.
A.
1.
2.
a.
b.
c.
Hedging with Forwards and Futures
Hedging and The Basis
Short vs. long hedge
Defining the Basis
Initial basis
Cover basis
Maturity basis
B. Understanding Basis Risk
C. Calculating the Optimal Hedge Ratio
1. Definition: The ratio of the spot and forward price standard
deviations multiplied by the correlation coefficient between the two
series (　)
2. Cross hedge can be measured as (1 - 2)
iii. Forward and Futures Contracts: Basic Valuation Concepts
Forward and futures contracts are not securities but, rather, trade
agreements that enable both buyers and sellers of an underlying
commodity or security to lock in the eventual price of their transaction
27
A. Valuing Forwards and Futures
B. The Relationship Between Spot and Forward Prices
iv. Financial Forwards and Futures: Applications and Strategies
A. Forward and futures markets were originally begun for agricultural
commodities
B. Interest Rate Forwards and Futures
C.
1.
2.
3.
a.
b.
Long-Term Interest Rate Futures
Treasury Bond and Note Contract Mechanics
A Duration-Based Approach to Hedging
Treasury Futures Applications
Hedging a Future Funding Commitment
A T-Bond/T-Note (NOB) Futures Spread
D.
1.
2.
a.
b.
c.
Short-Term Interest Rate Futures
Eurodollar and T-Bill Contract Mechanics
Short-Term Interest Rate Futures Applications
Altering Bond Duration With Futures Contracts
Creating a Synthetic Fixed-Rate Funding With a Eurodollar Strip
Creating a TED Spread
E.
1.
2.
3.
4.
a.
Stock Index futures
Stock Index Futures Contract Fundamentals
Stock Index Futures Valuation and Index Arbitrage
Implementing an Index Arbitrage Strategy
A Stock Index Futures Application
Isolating the Unsystematic Risk of an Individual Stock
F.
1.
2.
3.
a.
Currency Forwards and Futures
The Mechanics of Currency Transactions
Interest Rate Parity and Covered Interest Arbitrage
A Currency Futures Application
Calculating Implied World Investment Rates
III. Option Contracts
i. An Overview of Option Markets and Contracts
A. Option Market Conventions
1. Option contracts have been traded for centuries
2. Customized options traded on OTC market
3. In April 1973, standardized options began trading on the Chicago
Board Option Exchange
28
4. Options Clearing Corporation (OCC) acts as guarantor of each
CBOE -traded options
B. Price Quotations For Exchange-Traded Options
1. Equity Options
a. Other option markets include: American (AMEX), Philadelphia
(PHLX) and Pacific (PSE) Stock Exchanges
b. Understanding a quotation ( see Panel A of Exhibit 23.1)
2. Stock Index Options
3. Foreign Currency Options
4. Options on Futures Contracts
ii.
The Fundamentals of Option Valuation
A. The Basic Approach – Three Step Process
1. Design riskless hedge with one share of stock held long and some
number (h) of call options
2. Calculate the formula’s certain values
3. Rearrange values in the equation and solve for the call value (C0)
B.
1.
2.
3.
Improving Forecast Accuracy
Creating a Stock Price Tree
Valuing in Other Subintervels
Expanding the Stock Price Tree
C.
1.
2.
3.
The Binomial Option Pricing Model
Forecast Price Changes (see Exhibit 23.9)
Generalizing the Model
Equations and illustration
D.
1.
2.
a.
b.
c.
d.
e.
The Black Scholes Valuation Model
A continuous model
Function of five variables
Current security price
Exercise (or striking) price
Time to expiration
Risk-free rate
Security price volatility (measured by standard deviation)
E. Estimating Volatility
1. Historical: price movements
2. Implied: volatility (use current market price of option and rearrange
Black-Scholes model to solve for volatility measure)
29
F. Problems With Black-Scholes Valuation
1. Empirical studies showed that the Black-Scholes model overvalued
out-of-the-money call options and undervalued in-the-money contracts
2. Any violation of the assumptions upon which the Black-Scholes
model is based could lead to a misevaluation of the option contract
iii. Option Valuation: Extensions and Advanced Topics
A.
B.
C.
D.
1.
2.
3.
Valuing European-Style Put Options
Valuing Options On Dividend Bearing Securities
Valuing American Style Options
Other Extensions of the Black-Scholes Model
Stock Index Options
Foreign Currency Options
Futures Options
E. Exotic Options
1. Asian Options
These are contracts whose terminal payoffs are determined by the
average price of the underlying security during the life of the contract
2. Lookback Options
These guarantee the holder a distribution based on the maximum
price the underlying security achieves during the life of the contract
3. Digital Options
The payoff to a digital option is a fixed amount regardless of how
deep in the money the contract is at expiration
iv. Option Trading Strategies
Options are a leveraged alternative to making a direct investment in
the asset on which the contract is based
Put options could be used in conjunction with an existing portfolio to
limit the portfolio’s loss potential
A.
B.
C.
1.
2.
3.
Protective Put Options
Covered Call Options
Straddles, Strips, and Straps
Strangles
Chooser Options
Spreads
D. Range Forwards
本章 Class Discussion:
思考
Problems on P 378-379: No.1-10
题
30
Learning after class:
1. Homework
a. Problems on P 378-379
b.
Questions on P 376-376 No.1-32
1. 学生对 derivatives 的概念、作用以及现实中使用状况的理解是一个难
课后
点。
小结 2. 特别要强调 futures and options 的构成、功能以及用于防范风险时的
常用操作手段和策略
31
Chapter 5 Analysis of financial statement
学 时 ： 4 sections
Chapter 5
授课 章节（单元、专题）
内容 内
容
Analysis of financial statement
Questions to be answered:
1. What are the major financial statements provided by firms and what
specific information does each of them contain?
2. Why do we use financial ratios to examine the performance of a firm
and why is it important to examine performance relative to the
economy and a firm’s industry?
3. What are the major categories for financial ratios and what questions
are answered by the ratios in these categories?
4. What specific ratios help determine a firm’s internal liquidity,
教学
operating performance, risk profile, growth potential, and external
目标
liquidity?
与要 5. How can the DuPont analysis help evaluate a firm’s return on equity
求
over time?
6. What are some of the major differences between U.S. and non-U.S.
financial statements and how do these differences affect the
financial ratios?
7. What is a “quality” balance sheet or income statement?
8. Why is financial statement analysis done if markets are efficient and
forward-looking?
9. What major financial ratios help analysts in the following areas:
stock valuation, estimating and evaluating systematic risk, predicting
the credit ratings on bonds, and predicting bankruptcy?
Emphasis：
1. major financial statement
2. analysis of financial ratios
3. computation of financial ratios
4. evaluating internal liquidity
5. evaluating operating performance
教学 6. risk analysis
重点 7. analysis of growth potential
与难 8. external market liquidity
点
9. comparative analysis of rations
10. analysis of non-us financial statement
11. the quality of financial statements
12. the value of financial statement analysis
13. use of financial ratios
Difficulties：
32
1. analysis of financial ratios
2. evaluating internal liquidity
3. evaluating operating performance
4. risk analysis
5. analysis of growth potential
6. external market liquidity
7. comparative analysis of rations
8. use of financial ratios
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
课件来源
Self-designed
段
学
时
4 sections
1. major financial statement
教学
2. computation，analysis ,use and comparative
内容
analysis of financial ratios
与
3. risk analysis,
时间
4. discussion
安排
0.5 section
1.5 section
1section
1 section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
I. Major Financial Statements
ƒ Balance Sheet
ƒ Income Statement
讲课
ƒ Statement of Cash Flows
提纲
与板
A. Generally Accepted Accounting Principles (GAAP)
书设
ƒ Formulated by the Financial Accounting Standards Board
计
(FASB)
B. Balance Sheet - indicates at a certain point in time, what resources
(assets) the firm controls and how it has financed these assets
C. Income Statement - indicates the flow of sales, expenses and profit
during a period
D. Statement of Cash Flows - integrates the two prior statements,
indicating how the balance sheet changes due to operating,
investment and financing activities. It has three sections:
33
1. Cash Flows from Operating Activities – the sources and uses
of cash that arise from the normal operations of a firm
2. Cash Flows from Investment Activities – change in gross plant
and equipment plus the change in the investment account
3. Cash Flows from Financing Activities – financing sources
minus financing uses
E. Alternative Measures of Cash Flow
1. Cash Flow from Operations
2. Free Cash Flow
F. Purpose of Financial Statement Analysis - aids in the evaluation of
management performance in several important areas, including
profitability, efficiency, and risk
II. Analysis of Financial Ratios
ƒ Financial ratios are used because numbers in isolation are of
little value.
ƒ Financial ratios are help to identify the strengths and
weaknesses in a company’s financial health so that corrective
action may be initiated in a timely manner
A. Importance of Relative Financial Ratios – An individual financial
ratio has little value except in relation to comparable ratios for
other entities. Hence, only relative financial ratios are relevant.
A firm’s performance is examined relative to:
1. To the aggregate economy
2. To the firm's industry
3. To the firm's major competitors
4. To the firm's own past performance
III. Computation of Financial Ratios (5 major categories)
A. Common Size Statements
ƒ “Normalize” balance sheet and income statement items to
allow easier comparison of different-size firms
IV.
Evaluating Internal Liquidity
A. Internal Liquidity Ratios
1. Current Ratio
2. Quick Ratio
3. Cash Ratio
4. Receivables Turnover
34
5. Inventory Turnover
6. Cash Conversion Cycle
V. Evaluating Operating Performance
A. Operating Efficiency Ratios
1. Total Asset Turnover
2. Net Fixed Asset Turnover
3. Equity Turnover
B. Operating Profitability Ratios
1. Gross Profit Margin
2. Operating Profit Margin
3. Net Profit Margin
4. Common Size Income Statement
5. Return on Total Capital
6. Return on Total Capital including Leases
• Implied Interest for Leased Assets
• Implied Depreciation on Leased Assets
7. Return on Owner's Equity
8. The DuPont System
9. An Extended DuPont System
VI.
Risk Analysis
A. Business Risk
ƒ Uncertainty of income caused by the firm’s industry
ƒ Generally measured by the variability of the firm’s operating
income over time
Two factors that contribute to the variability of operating earnings
are:
1. Sales Variability
2. Operating Leverage
B. Financial Risk
ƒ Additional uncertainty of returns to equity holders due to a
firm’s use of fixed obligation debt securities
ƒ The acceptable level of financial risk for a firm depends on its
business risk
Three sets of financial ratios to measure financial risk are:
1. Proportion of Debt (Balance Sheet) Ratios
• Debt-Equity Ratio
35
• Long-Term Debt/Total Capital Ratio
• Total Debt Ratios
2. Earnings or Cash Flow Ratios
• Interest Coverage
3. Cash Flow Ratios
• Cash Flow-Coverage Ratio
• Cash Flow-Long-Term Debt Ratio
• Cash Flow/Total Debt Ratio
• Alternative Measures of Cash Flow
C. External Liquidity Risk
1. Determinants of Market Liquidity
VII. Analysis of Growth Potential
ƒ The analysis of sustainable growth potential examines ratios
that indicate how fast a firm should grow
A. Importance of Growth Potential
ƒ For owners
ƒ For lenders
B. Determinants of Growth (RR x ROE)
ƒ The amount of resources retained and reinvested in the entity,
and
ƒ The rate of return earned on the resources retained
VIII. Comparative Analysis of Ratios (in this case, for Walgreens)
A.
B.
C.
D.
IX.
X.
Internal Liquidity
Operating Performance
Risk Analysis
Growth Analysis
Analysis of Non-U.S. Financial Statements
The Quality of Financial Statements
A. Balance Sheet - A high-quality balance sheet typically has a
conservative use of debt or leverage
B. Income Statement - The closer the earnings are to cash, the higher
36
the quality of the income statement.
C. Footnotes – The purpose of the footnotes is to provide information
on how the firm handles balance sheet and income items.
Hence, reading them is important.
XI.
The Value of Financial Statement Analysis
XII. Specific Uses of Financial Ratios
A.
B.
C.
D.
Stock Valuation Models
Estimating Systematic Risk
Estimating the Credit Ratings on Bonds
Predicting Insolvency (Bankruptcy)
XIII. Limitations of Financial Ratios
Class Discussion:
USE THE FOLLOWING INFORMATION FOR THE NEXT TEN PROBLEMS
BMC CORPORATION INCOME STATEMENT
FISCAL YEAR ENDING 12/31/2001
(DOLLARS IN THOUSANDS)
本章
思考
题
Net Sales
Cost of Goods Sold
Gross Profit Margin
Depreciation
Operating Expense
Administrative Expense
Operating Profit
Interest
Profit Before Tax
Taxes
Net Income
$1025
682
343
31
103
127
82
27
55
17
$38
BMC CORPORATION BALANCE SHEET
FISCAL YEAR ENDING 12/31/2001
(DOLLARS IN THOUSANDS)
ASSETS
Cash
Accts rec
$ 61
286
LIABILITIES
Notes payable
Accounts payable
$223
152
37
Inventory
Ttl cur assts
Net fixed assets
Total assets
354
701
802
$1503
Accruals
32
Total current liabilities
407
Long term debt
306
Common stock ($1.50 par) 102
Paid in surplus
226
Retained earnings
462
Total liabilities and
Stockholders' equity
$1503
(a) 1
What was BMC’S return on equity in 2001?
a) 4.8%
b) 5.9%
c) 6.7%
d) 8.3%
e) 11.6%
(d) 2
What was BMC’S quick ratio for 2001?
a) 1.72
b) 1.37
c) 1.02
d) 0.85
e) 0.55
(b) 3
What was BMC’S interest coverage for 2001?
a) 6.82
b) 3.04
c) 2.74
d) 2.04
e) 1.41
(e) 4
What was BMC’S total asset turnover for 2001?
a) 0.23
b) 1.28
c) 1.46
d) 0.87
e) 0.68
(d) 5
What was BMC’S current ratio at year-end 2001?
a) 0.852
b) 1.000
c) 1.368
d) 1.722
e) 1.943
38
(b) 6
What was BMC’S net profit margin?
a) 0.058
b) 0.037
c) 0.125
d) 0.015
e) 0.165
(c) 7
What was BMC’S fixed asset turnover ratio?
a) 0.680
b) 0.780
c) 1.278
d) 1.874
e) 8.220
USE THE FOLLOWING INFORMATION FOR THE NEXT FOUR PROBLEMS
You are provided with the following information for a company.
Net Annual Sales
35000
Average
Receivables
COGS
750
20000
Average Inventory
3000
Average Trade Payables
1500
(a) 1 Calculate the receivables turnover ratio
a) 46.7
b) 8
c) 55
d) 36.7
e) 27
(e) 2 Calculate the inventory turnover ratio
a) 27.23
b) 13.3
c) 55.43
d) 8.67
e) 6.67
(b) 3 Calculate the payables turnover ratio
a) 30.3
b) 13.3
39
c)
d)
e)
55.4
10.3
56.6
(e) 4 Calculate the cash conversion cycle
a) 15
b) 46
c) 27
d) 55
e) 36
Learning after class:
1. Homework
a. Problems on P 430-433
b. Questions on P 428-430
1. 学生对财务报表所反映经济活动的理解是一个难点，经常无法将财务
报表的内容与企业经济活动的过程与结果相联系。
课后
2. 特别要强调财务指标的计算、作用以及局限性和静态性，尤其是将统
小结
一企业不同时期以及不同企业的财务指标进行比较时，特别要关注比
较对象的可比性问题。
40
Chapter 6 An introduction to security valuation
学 时 ： 6 sections
Chapter 6
授课 章节（单元、专题）
内容 内
容
An introduction to security valuation
Questions to be answered:
1. What are the two major approaches to the investment process?
2.
What are the specifics and logic of the top-down (three-step)
approach?
3.
What empirical evidence supports the usefulness
of the
top-down approach?
4.
When valuing an asset, what are the required inputs?
5.
After you have valued an asset, what is the investment decision
process?
6.
How do you determine the value of bonds?
7.
How do you determine the value of preferred stock?
8.
What are the two primary approaches to the valuation of common
stock?
9.
Under what conditions is it best to use the present value of cash
flow approach for valuing a company’s equity?
10.
Under what conditions is it best to use the present value of cash
教学
flow approach for valuing a company’s equity?
目标 11.
How do you apply the discounted cash flow valuation approach
与要
and what are the major discounted cash flow valuation techniques?
求
12.
What is the dividend discount model (DDM) and what is its logic?
13.
What is the effect of the assumptions of the DDM when valuing a
growth company?
14.
How do you apply the DDM to the valuation of a firm that is
expected to experience temporary supernormal growth?
15.
How do you apply the relative valuation approach?
16.
What are the major relative valuation ratios?
17.
How can you use the DDM to develop an earnings multiplier
model?
18.
What does the DDM model imply are the factors that determine a
stock’s P/E ratio?
19.
What two general variables need to be estimated in any of the
cash flow models and will affect all of the relative valuation models?
20.
How do you estimate the major inputs to the stock valuation
models (1) the required rate of return and (2) the expected growth
rate of earnings and dividends?
21.
What additional factors must be considered when estimating the
required rate of return and growth for foreign security?
41
Emphasis：
1. the three-step valuation process
2. theory of valuation
3. valuation of alternative investments
4. relative valuation techniques
教学 5. estimating the inputs：the required rate of return and the expected
重点
growth rate of valuation variables
与难
点
Difficulties：
1. the theory of valuation
2. valuation of alternative investments
3. relative valuation techniques
4. estimating the inputs：the required rate of return and the expected
growth rate of valuation variables
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
段
1.
2.
教学
3.
内容
4.
与
5.
时间
安排
6.
课件来源
Self-designed
学
时
6 sections
the three-step valuation process
0.5 section
theory of valuation
1
section
valuation of alternative investments
1
section
relative valuation techniques
1
section
estimating the inputs：the required rate of 1.5 section
return and the expected growth rate of
valuation variables
discussion
1 section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
讲课 4. 课堂讨论
提纲
与板 I.
An Overview of the Valuation Process
书设
计
A. The top-down, three-step approach
ƒ Both the economy/market and the industry effect have a
significant impact on the total returns for individual stocks
B.
The bottom-up, stock valuation, stock picking approach
ƒ It is possible to find stocks that are undervalued relative to
their market price, and these stocks will provide superior
42
returns regardless of the market and industry outlook
II.
Why a Three-Step Valuation Process?
A.
General Economic Influences
ƒ Monetary and fiscal policy measures have an impact on the
economy of the country where they are enacted
ƒ The economic conditions influence all industries and
companies
B.
Industry Influences
ƒ An industry’s prospects within the global business
environment will determine how well or poorly an individual
firm will fare.
ƒ Hence, industry analysis should precede company analysis
C.
Company Analysis
ƒ Quantitative and Qualitative analysis
ƒ Estimation of the “intrinsic” value of the stock and comparison
with the market price
D.
Does the Three-Step Process Work?
ƒ Results from academic studies support the use of the
three-step investment process
III.
Theory of Valuation
A.
Stream of Expected Returns (Cash Flows)
1. Form of Returns – earnings, cash flows, dividends, interest
payments, or capital gains
2. Time Pattern and Growth Rate of Returns – money has a time
value
B.
Required Rate of Return
1. The economy’s real risk-free rate of return
2. The expected rate of inflation during the holding period
3. A risk premium that is determined by the uncertainty of returns
C.
Investment Decision Process
ƒ Estimation of the intrinsic value of the investment at the
required rate of return
ƒ Comparison of intrinsic value with the market price
43
IV.
Valuation of Alternative Investments
A.
Valuation of Bonds
1. Present value of interest
2. Present value of principle
B.
Valuation of Preferred Stock
1. Present value of dividend
C.
Approaches to the Valuation of Common Stock
ƒ Discounted Cash Flow Techniques
ƒ Relative Valuation Techniques
D.
Why and When to Use the Discounted Cash-Flow Valuation
Approach
1. Dividends
2. Operating free cash flow
3. Free cash flow to equity
All of the above cash flow techniques are very dependent on:
ƒ The rate of growth and the duration of growth of the cash
flows
ƒ The estimate of the discount rate
E.
Why and When to Use the Relative Valuation Techniques
1. A good set of comparable entities is available
2. Aggregate market is not at a valuation extreme
F.
Discounted Cash-Flow Valuation Techniques
1. The Dividend Discount Model (DDM) – cost of equity is used
as the discount rate
a. One-year Holding Period
b. Multiple-Year Holding Period
c. Infinite Period Model
G.
Infinite Period DDM and Growth Companies
1. Assumptions of the infinite period DDM
a. Dividends grow at a constant rate
b. The constant growth rate will continue for an infinite period
c. The required rate of return (k) is greater than the infinite
growth rate 9g)
H.
Valuation with Temporary Supernormal Growth
I.
Present Value of Operating Free Cash Flows – weighted average
44
cost of capital is used as the discount rate
J.
V.
Present Value of Free Cash Flow to Equity – cost of equity is
used as the discount rate
Relative Valuation Techniques
A.
Earnings Multiplier Model (or P/E ratio)
B.
The Price/Cash Flow Ratio
C.
The Price/Book Value Ratio
D.
The Price/Sales Ratio
VI.
Estimating the Inputs: The Required Rate of Return and the
Expected Growth Rate of Valuation Variables
A.
Required Rate of Return (k)
1. The Economy's Real Risk-Free Rate (RRFR)
2. The Expected Rate of Inflation (I)
3. The Risk Premium (RP)
a. Business risk, financial risk, liquidity risk, exchange rate
risk, country risk
b. Changes in the risk premium
B.
Estimating the Required Rate of Return for Foreign Securities
1. Foreign Real RFR
2. Inflation Rate
3. Risk Premium
C.
Expected Growth Rate of Dividends
1. Estimating Growth From Fundamentals
2. Breakdown of ROE
3. Estimating Growth Based on History
D.
Estimating Dividend Growth for Foreign Stocks
1. Retention Rates
2. Net Profit Margin
3. Total Asset Turnover
4. Total Asset/Equity Ratio
Class Discussion:
本章
思考
题
1. Use the following information for the next two problems
A major retailer is reevaluating its bonds since it is planning to issue a
new bond in the current market. The firm's outstanding bond issue
has 10 years remaining until maturity. The bonds were issued with a
8 percent coupon rate (paid semiannually) and a par value of $1,000.
45
Because of increased risk the required rate has risen to 10 percent.
(c) 1
What is the current value of these securities?
a) $686.50
b) $699.00
c) $875.38
d) $868.50
e) $902.00
(e) 2
What will be the value of these securities in one year if the
required return declines to 6 percent?
a) $699.00
b) $802.50
c) $1259.05
d) $1012.17
e) $1137.54
2. Use the following information for the next two problems
Ridgemont Can Company's last dividend was $1.55 and the
directors expect to maintain the historic 5 percent annual rate of
growth. You plan to purchase the stock today because you feel that
the growth rate will increase to 8 percent for the next three years and
the stock will then reach $22.50 per share.
(b) 1 How much should you be willing to pay for the stock if you
require a 15 percent return?
a) $16.97
b) $18.90
c) $21.32
d) $32.63
e) None of the above
(d) 2 How much should you be willing to pay for the stock if you
feel that the 8 percent growth rate can be maintained indefinitely and
you require a 15 percent return?
a) $18.90
b) $19.28
c) $22.14
d) $23.91
e) $25.46
3. Use the following information for the next four problems
46
Consider a firm that has just paid a dividend of $2. An analyst expects
dividends to grow at a rate of 8% per year for the next five years. After
that dividends are expected to grow at a normal rate of 5% per year.
Assume that the appropriate discount rate is 7%.
(d) 1
The dividends for years 1, 2, and 3 are
a)
$2, $2.08, $2.16
b)
$2, $2.05, $2.10
c)
$2.16, $2.24, $2.32
d)
$2.16, $2.33, $2.52
e)
$2.07, $2.14, $2.21
(e) 2
The future price of the stock in year 5 is
a)
$113.40
b)
$122.47
c)
$132.27
d)
$142.85
e)
$154.35
(b) 3
The present value today of dividends for years 1 to 5 is
a)
$4.06
b)
$10.28
c)
$12.40
d)
$14.52
e)
$10.0
(c) 4
The price of the stock today (P0) is
a)
$136.29
b)
$133.03
c)
$120.33
d)
$123.43
e)
$126.60
Case Study: Valuation of Minsheng Bank
Learning after class:
1. appendix: Derivation of Constant Growth Dividend Discount
Model
2. Homework
a. Problems on P 471-472
b. Questions on P 471
3. 学生对证券价值的评价方法比较熟悉。
课后
4. 对债券的估价和重新估价的概念比较模糊，尤其是对各种变量的变化
小结
对债券价值的影响以及影响这些变量变化的因素理解不够深刻。
47
5. 对于股票的评价，比较熟悉的是现金流贴现方法，而对 relative
valuation techniques 不很容易理解，需要更多讲解。
6. 各种输入变量的估算是难点，要结合实际讲解。
48
Chapter 7
Bond Fundamentals
学 时 ： 4 sections
Chapter 7
授课 章节（单元、专题）
内容 内
容
Bond Fundamentals
Questions to be answered:
教学
目标
与要
求
1. What are some of the basic features of bonds that affect their risk,
return, and value?
2.
What is the current country structure of the world bond market
and how has the makeup of the global bond market changed in
recent years?
3.
What are the major components of the world bond market and the
international bond market?
4.
What are bond ratings and what is their purpose?
5.
What is the difference between investment-grade bonds and
high-yield (junk) bonds?
6.
What are the characteristics of bonds in the major bond
categories such as governments (including TIPS), agencies,
municipalities, and corporates?
7.
How does the makeup of the bond market in major countries
such as the United States, Japan, the United Kingdom, and
Germany differ?
8.
What are the important characteristics of corporate bond issues
developed in the United States during the past decade such as
mortgage-backed securities, other asset-backed securities,
zero-coupon and deep discount bonds, high-yield bonds, and
structured notes?
9.
Within each of the major bond categories, what are the
differences between major countries such as the United States,
Japan, the United Kingdom, and Germany
10.
How do you read the quotes available for the alternative bond
categories (e.g., governments, municipalities, corporates)?
Emphasis：
1. Basic features of bond
2. the global bond-market structure
3. alternative bond issues
4. obtaining information on bond prices
教学
重点
与难
点
Difficulties：
1. basic features of bond
2. bond characteristics and bond valuation
3. real implication of basic features of bond to bond valuation
49
4. alternative bond issues and creations
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
课件来源
Self-designed
段
学
时
4 sections
教学
内容
与
时间
安排
1.
2.
3.
4.
Basic features of bond
the global bond-market structure
alternative bond issues
discussion and case study
1
section
0.5 section
1.5
section
1
section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
Basic Features of a Bond
I.
A.
1.
2.
讲课
提纲
与板
书设
计
Public Bonds
Payments: interest (periodically) and principal at maturity
Term to maturity
a. Short-term (money market)
b. Intermediate-term (notes)
c. Long-term (bonds)
B.
1.
Bond Characteristics
Intrinsic Features
a. Coupon – the income that the bond investor will receive
over the life (or holding period) of the issue
b. Term to maturity – date or number of years before a bond
matures
Term vs. serial obligation bond
c. Principal or par value – the original value of the obligation
d. Types of ownership--Bearer vs. registered bond
2. Types of Issues
a. Secured (senior) bonds – backed by legal claim on some
specified property
For example, mortgage bonds, equipment trust
certificates, etc.
b. Unsecured bonds (debentures) – backed only by the
promise of the issuer to pay interest and principal on a timely
50
basis
c. Subordinated (junior) debentures – claim on income and
assets that is subordinated to other debentures
d. Income bonds (revenue bonds for municipal issues) –
interest is paid only if earned
e. Refunding issues – provide funds to prematurely retire
another issue
3. Indenture Provisions
4. Features Affecting a Bond's Maturity
a. Call features (freely callable, non-callable, deferred call,
call premium)
b. Nonrefunding provision
c. Sinking fund
C.
Rates of Return on Bonds
where:
HPRi,t = holding period return for bond i during period t
Pi,t+1 = market price of bond i at the end of period t
Pi,t
= market price of bond i at the beginning of period t
Inti,t = interest payments on bond i during period t
HPY = HPR – 1
II.
The Global Bond Market Structure
A.
Size and Distribution (See Exhibit 18.1)
B.
1.
2.
3.
4.
5.
Participating Issuers
Government
Government agencies
Municipalities
Corporations
International
C.
1.
Participating Investors
Institutional Investors
Life Insurance Companies
Commercial Banks
Property and Liability Insurance Companies
Pension Funds
Mutual Funds
Individual Investors
a.
b.
c.
d.
e.
2.
D.
Bond Ratings
51
1.
2.
Rating agencies
Description of bond ratings (see Exhibit 18.3)
III.
Alternative Bond Issues
A.
1.
2.
3.
4.
5.
Domestic Government Issues
United States
Treasury Inflation Protected Securities (TIPS)
Japan
Germany
United Kingdom
B.
1.
2.
3.
4.
Government Agency Issues
United States
Japan
Germany
United Kingdom (no government agency issues)
C.
1.
2.
a.
b.
3.
4.
Municipal Bonds
Japan, Germany and United Kingdom - limited market size
United States
Types: general obligation bonds (GOs) and revenue bonds
Tax-free interest
ETY (equivalent taxable yield) = i/(1 – t)
Municipal Bond Insurance
D.
1.
2.
Corporate Bonds
U. S. Corporate Bond Market
a. Mortgage Bonds
b. Equipment Trust Certificates
c. Collateral Trust Bonds
d. Collateralized Mortgage Obligations (CMOs)
e. Asset-Backed Securities (ABS)
f. Certificates for Automobile Receivables (CARS)
g. Credit Card Receivables
h. Variable-Rate Notes
i. Zero Coupon and Deep-Discount Bonds
j. High-Yield Bonds
k. Brief History of the High-Yield Bond Market
l. Distribution of High-Yield Bond Ratings
m. Ownership of High-Yield Bonds
Japanese Corporate Bond Market
52
a. Regulation (Kisaikai)
b. Bond-rating agencies
c. Minimum issuing requirements are specified by the
Ministry of Finance
d. Bank Bonds
3.
Germany Corporate Bond Market
a. German mortgage bonds
b. German commercial paper
c. Private loan agreements (Schuldscheindarlehen)
4.
U.K. Corporate Bond Market
a. Debentures
b. Unsecured loans
c. Convertible bonds
E.
1.
2.
a.
b.
3.
a.
b.
4.
a.
5.
a.
IV.
International Bonds
Foreign bonds (e.g. Yankee bonds) and Eurobonds
United States
Eurodollar bonds
Yankee bonds
Japan
Samurai bonds
Euroyen bonds
Germany
Eurobonds
United Kingdom
Bulldog bonds
Obtaining Information on Bonds
A.
Interpreting Bond Quotes
1. Corporate Bond Quotes (see Exhibit 18.8)
2. Treasury and Agency Bond Quotes (see Exhibit 18.9)
3. Municipal Bond Quotes (see Exhibit 18.10)
Class Discussion:
1. discussion of TIPs
本章
思考
题
•
TIPS
– Treasury Inflation-Protected Security (TIPS)
– TIPS offer a number of potential benefits for investors.
• TIPS are direct obligations of the United States
government, and are backed by the full faith and
credit of the government.
53
The principal is protected against inflation and
deflation as well.
• Interest is also protected from inflation .
TIPS: the Structure and Index
– Principal amount
• The principal amount of TIPS are adjusted for
changes in the level of inflation.
– Index
• The index for measuring the inflation rate is the
nonseasonally adjusted CPI-U .
– Interest payments
• Semiannual interest payments are determined by
multiplying the inflation-adjusted principal amount
by one-half the stated rate of interest on each
interest payment date
– Maturity
• TIPS are issued with a 10-year maturity
– An Example of How TIPS Work
• Suppose an individual invests $1,000 on January
15 in a new inflation-protected 10- year note with a
3% real rate of return
•
•
2. discussion of Collateralized mortgage obligations (CMOs)
•
•
•
•
CMO’S is used to eliminate the uncertainty associated with the
early retirement of the pass-through mortgage bond.
The main innovation of the CMO instrument is the segmentation
of irregular mortgage cash flows to create securities that are
high-quality, short-,medium-, and long-term collateralized bonds.
Collateralized mortgage obligations (CMOs): sequential
distribution process
• Several classes of bonds are issued against a pool of
mortgages, which are the collateral.
• The cash flows received from the underlying mortgages
are applied first to pay the interest on the bonds, and then
to retire these bonds.
• The classes of bonds are retired sequentially.
• All remaining cash flows are used to pay off the accrued
interest ,pay any current interest, and then to retire the Z
bond.
Collateralized mortgage obligations (CMOs): benefits to investors
• They are considered as very high quality securities
because of structure and quality of the collateral.
• CMOs are always over collateralized.
54
•
•
The credit risk is minimal, because most are backed by
mortgage guaranteed by a federal agency.
Even with AAA rating ,the yield of CMOs has been higher
than the yields on AA industires.
•
3． discussion of PIK Bond
•
•
Payment-In-kind bond
The bond that gives the issuer an option either to make coupon
payment in cash or in the form of additional bonds.
– They pay interest in the form of additional bonds rather
than cash.
– PIKs are frequently used as a financing tool for leveraged
buyouts because they enable the borrower to achieve
higher leverage without paying cash interest on all of the
funds raised.
– PIKs and zeros were regarded as conservative
investments because they were seen as a way for a
company to build up cash before it had to make payments
4. discussion of Asset-backed securities (ABS)
•
•
•
•
•
Asset-backed securities are bonds that are based on underlying
pools of assets.
A special purpose trust or instrument is set up which takes title to
the assets and the cash flows are "passed through" to the
investors in the form of an asset-backed security.
The types of assets that can be "securitized" range from
residential mortgages to credit card receivables.
All sorts of assets are securitized:
• auto loans
• student loans
• mortgages
• credit card receivables
• lease payments
• accounts receivable
• corporate or sovereign debt, etc.
Assets are often called collateral.
Case Study: How to securitize?
Learning after class:
1. appendix: Derivation of Constant Growth Dividend Discount
55
1.
2.
课后
3.
小结
4.
Model
2. Homework
a. Problems on P 540 No. 1-13
b. Questions on P 540-541
学生对固定受益证券的定义比较熟悉。
对固定收益证券的合约条款及其经济、法律含义理解不够深刻，对这
些条款与固定收益证券定价的关系理解也不够深入。
对各种固定收益证券的种类和定义比较熟悉，而对利用各种条款与价
值的内在联系进行的各种证券种类的创新不够熟悉。
利用固定收益的四大基本条款进行证券种类的创新是市场的特征之
一，也是将来市场发展的方向，必须加以详尽的说明和讨论。
56
Chapter 8
The analysis and valuation of bonds
学 时 ： 6 sections
Chapter 8
授课 章节（单元、专题）
内容 内
容
The analysis and valuation of bonds
Questions to be answered:
教学
目标
与要
求
教学
重点
与难
点
1. How do you determine the value of a bond based on the present
value formula?
2.
What are the alternative bond yields that are important to
investors?
3.
How do you compute the following major yields on bonds: current
yield, yield to maturity, yield to call, and compound realized (horizon)
yield?
4.
What are spot rates and forward rates and how do you calculate
these rates from a yield to maturity curve?
5.
What is the spot rate yield curve and forward rate curve?
6.
How and why do you use the spot rate curve to determine the
value of a bond?
7.
What are the alternative theories that attempt to explain the
shape of the term structure of interest rates?
8.
What factors affect the level of bond yields at a point in time?
9.
What economic forces cause changes in bond yields over time?
10.
When yields change, what characteristics of a bond cause
differential price changes for individual bonds?
11.
What is meant by the duration of a bond, how do you compute it,
and what factors affect it?
12.
What is modified duration and what is the relationship between a
bond’s modified duration and its volatility?
13.
What is effective duration and when is it useful?
14.
What is the convexity for a bond, how do you compute it, and
what factors affect it?
15.
Under what conditions is it necessary to consider both modified
duration and convexity when estimating a bond’s price volatility?
16.
What happens to the duration and convexity of bonds that have
embedded call options?
Emphasis：
1. the fundamentals of bond valuation
2. computing bond yields
3. calculating future bond prices
4. bond valuation using spot rates
5. what determines interest rate
6. calculating forward rate from the spot rate curve
57
7. term structure theory
8. what determines the price volatility for bonds
9. yield spread with embedded options
Difficulties：
1. computing bond yields
2. calculating future bond prices
3. what determines interest rate
4. term structure theory
5. what determines the price volatility for bonds
6. yield spread with embedded options
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
课件来源
Self-designed
段
学
时
6 sections
教学
内容
与
时间
安排
1.
2.
3.
4.
5.
6.
7.
computing bond yields
calculating future bond prices
what determines interest rate
term structure theory
what determines the price volatility for bonds
yield spread with embedded options
discussion
0.5
0.5
1
0.5
2
0.5
1
section
section
section
section
section
section
section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
I.
The Fundamentals of Bond Valuation
讲课
提纲
与板
书设
计
A.
The Present Value Model
ƒ The value of a bond equals the present value of its expected
cash flows
1. The Price-Yield Curve – Price moves inversely to yield
2. Observations
a. Yield < coupon rate, bond will be priced at a premium to its
par value
b. Yield > coupon rate, bond will be priced at a discount to its
par value
c. Price-yield relationship is convex (not straight line)
B.
The Yield Model
58
II.
Computing Bond Yields
A.
Nominal (Coupon) Rate
B.
Current Yield
C.
Promised Yield to Maturity (YTM)
1. Most important and widely used measure
2. Assumptions
a. Hold bond to maturity
b. Reinvest all interim cash flows at computed YTM
3. Computing the Promised Yield to Maturity
4. YTM for a Zero-Coupon Bond
D.
Promised Yield to Call (YTC)
ƒ Whenever a bond with a call feature is selling for a price
above par equal to or greater than its call price, a bond
investor should consider valuing the bond in terms of YTC
rather than YTM
1. Computing Promised Yield to Call
E.
Realized (Horizon) Yield
1. Computing Realized (Horizon) Yield
III.
Calculating Future Bond Prices
A.
Realized (Horizon) Yield with Differential Reinvestment Rates
B.
Price and Yield Determination on Noninterest Rates
1. Accrued interest
C.
Yield Adjustments for Tax-Exempt Bonds
1. Fully taxable equivalent yield – adjusts the promised yield
computation for the bond’s tax-exempt status
D.
Bond Yield Books
IV.
Bond Valuation Using Spot Rates
V.
What Determines Interest Rates?
A.
Forecasting Interest Rates
ƒ The ability to forecast interest rates and changes in these
59
rates is critical to successful bond investing
B.
Fundamental Determinants of Interest Rates
1. Risk-Free Rate, Expected Inflation and Risk Premium
2. Effect of Economic Factors
3. The Impact of Bond Characteristics
a. Quality of the issue as determined by its risk of default
relative to other bonds
b. Term to maturity of the issue, which can affect price
volatility
c. Bond indenture provisions, including collateral, call
features, and sinking-fund provisions
d. Foreign bond risk, including exchange rate risk and
country risk
C.
Term Structure of Interest Rates
1. Yield Curves (See Exhibits 19.7 and 19.8)
2. Creating the Theoretical Spot-Rate Curve
VI.
Calculating Forward Rates From the Spot Rate Curve
VII.
Term-Structure Theories
A.
Three Major Theories
1. Expectations Hypothesis
a. Any long-term interest rate simply represents the
geometric mean of current and future one-year interest
rates expected to prevail over the maturity of the issue
b. Consistent Investor Actions
2. Liquidity Preference Hypothesis
a. Long-term securities should provide higher returns than
short-term obligations because investors are willing to
sacrifice some yields to invest in short-maturity obligations
to avoid the higher price volatility of long-maturity bonds
3. Segmented-Market Hypothesis (Preferred-Habitat,
Institutional Theory or Hedging Pressure Theory)
a. Different institutional investors have different maturity
needs that lead them to confine their security selections to
specific maturity segments
4. Trading Implications of the Term Structure
a. Information on maturities can help you formulate yield
expectations by simply observing the shape of the yield curve
B.
Yield Spreads
60
1.
2.
3.
4.
VIII.
Different segments
Different sectors
Different coupons or seasoning
Different maturities
What Determines the Price Volatility for Bonds?
A.
Interest Rate Sensitivity
B.
Bond Price Volatility
1. Bond prices move inversely to bond yields
2. Bond prices volatility is directly related to term to maturity
3. Bond price volatility increases at a diminishing rate as term to
maturity increases
4. Bond price movements are not symmetrical
5. Bond price volatility is inversely related to coupon
C.
Trading Strategies
D.
Duration Measures
1. Duration is a measure of interest rate sensitivity of a bond
a. Macaulay duration
b. Modified duration
c. Effective duration
d. Empirical duration
2. Macaulay Duration
a. Macaulay duration considers both the repayment of capital
at maturity and the size and timing of coupon payments
prior to final maturity
b. Characteristics of Duration
− Duration of a bond is less than term to maturity (except
zero coupon bonds)
− There is an inverse relationship between coupon and
duration
− Zero coupon bonds have duration equal to maturity
− There is a positive relationship between term to
maturity and duration
− There is a inverse relationship between YTM and
duration
− Sinking funds and call provisions cause decline in
duration
E.
Modified Duration and Bond Price Volatility
1. Modified duration can be used to approximate the interest rate
61
sensitivity of an option-free (straight) bond
2. Modified duration is always a negative value for a noncallable
bond because of the inverse relationship between yield
changes and bond price changes
3. Trading Strategies Using Duration
F.
Bond Convexity
1. The Price-Yield Relationship for Bonds (See Exhibits 19.18
and 19.19)
a. The price-yield relationship is not a straight line but a
curvilinear relationship (i.e., convex)
− This relationship can be applied to a single bond, a
portfolio of bonds, etc.
− The convex relationship will differ depending on the
nature of the cash flows, that is, coupon and maturity
b. The Desirability of Convexity
2. Determinants of Convexity
a. Convexity is a measure of the curvature of the price-yield
relationship
b. Factors and bond convexity
− Inverse relationship between convexity and coupon
− Direct relationship between convexity and maturity
− Inverse relationship between convexity and yield
3. The Modified Duration – Convexity Effects
4. Computation of Convexity
G.
Duration and Convexity for Callable Bonds
1. Option-Adjusted Duration
2. Convexity of Callable Bonds
H.
Limitations of Macaulay and Modified Duration
1. Major Limitations
a. The percentage change estimates using modified duration
are good only for small-yield changes
b. Difficult to determine the interest rate sensitivity of a
portfolio of bonds when there is a change in interest rates
and the yield curve experiences a nonparallel shift
c. Initial assumption that cash flows from the bond are not
affected by yield changes
2. Effective Duration
a. Effective duration measures the interest rate sensitivity of
a bond taking into consideration that the cash flows of the
bond can change when yields change due to the existence
of embedded options
62
3.
4.
5.
6.
b. Putable Options
Effective Duration Greater Than Maturity
Negative Effective Duration
Empirical Duration
Empirical Duration for Common Stock
Yield Spreads With Embedded Options
IX.
A.
Static Yield Spreads
Option-Adjusted Spread (OAS)
Class Discussion:
1. Discussion of Bond Selection 1
As the portfolio manager for a large pension fund, you are offered the
following bonds. Assuming that you expect a decline in interest rates
over the next 3years, identify and justify which of these bonds you
would select.
Coupo Maturit
n (%)
y
(years)
Edgar Corp.(new issue) 14
Edgar Corp.(new issue) 6
Edgar Corp.(1992 issue) 6
2012
2012
2012
Price
($)
Call
Yield to
price ($) Maturity(
%)
101.75
48.1
48.1
114
103
103
13.75
13.60
13.40
本章
思考
题
2. Discussion of Bond Selection 2
At the present time,you expect a decline in interest rate and must
choose between two bonds with the following characteristics. Select one
of the bonds and discuss three factors that would justify your selection.
A
B
maturity
10.5 years 10years
YTM
7%
10%
Modified duration
5.7 years
4.9 years
Modified convexity
125.18
40.30
Call features
noncallabe Deferred call feature that range
from 1 to 3 years
63
3 Discussion of Bond Selection 3
Assume an investor is trying to choose between purchasing a deep
discount bond or a par value bond. The deep discount bond pays 5%
interest, has 20 years to maturity, and it currently trading at $571 with
a 10% yield to maturity. It is callable at $1050. The second bond is
selling at its par value of $1000. It pays 12% interest and has 20
years to maturity. Its yield to maturity is also 12%. The bond is
callable at $1080.
• If the yield to maturity on the deep discount bond goes down by
2% to 8%, what will the new price of the bond be? Do
semiannually analysis.
• If the yield to maturity on the par value bond goes down by 2% to
10%, what will the new price of the bond be? Do semiannually
analysis.
• Based on the facts in the problem and your answer s to parts a
and b, which bond appears to be the better purchase?
4. discussion of Duration 1
•
•
•
•
•
•
•
•
•
Philip Morris has issued bonds that pay semiannually with the
following characteristics:
Coupon
YTM
Maturity
Macaulay
Duration
8%
8%
15 years
10years
Calculate modified duration using the information above.
Explain why modified duration is a better measure than maturity
when calculating the bond’s sensitivity to change in interest rates.
Identify the direction of change in modified duration if :
The coupon of the bond were 4%， not 8%
The maturity of the bond were 7 years, not 15years.
Define convexity and explain how modified duration and
convexity are used to approximate the bond’s percentage change
in price, given a change in interest rates.
5. Discussion of Duration 2
You are the investment advisor for an insurance company. The
treasurer of the insurance company has just come to you with a sum
of money, which she wishes to invest for exactly 2 years. The ending
value of the money should be $1000000.The investment must be in
default-free, non-callable bonds.
• Assume that current market interest rate for 2-year bond is 10%.
64
And there are two alternatives for your selection:
Bond Coupon
Maturity
Promised Ytm
Current price
A
8%
3
10%
$950.25
B
7%
1
10%
$972.73
• What is your investment strategy---how could you allocate the
capital with totally eliminating the interest risk associated with
2-year’s investment?
6. Discussion of Convexity
The Chartered Finance Corporation has issued a bond with the following
characteristics:
Maturity 25 years
Coupon9% Yield to maturity9%
CallableAfter 3 years @109
Duration to maturity8.2 years
Duration to first call2.1 years
• Discuss the concept of call-adjusted duration and indicate the
approximate value (range) for it at the present time.
• Assuming interest rates increase substantially (i.e., to
13%),discuss what will happen to the call-adjusted duration and
the reason for the change.
• Assuming interest rates decrease substantially (i.e., to
4%),discuss what will happen to the call-adjusted duration and
the reason for the change.
• Discuss the concept of negative convexity as it relates to this
bond.
Learning after class:
1. appendix: calculation of duration and convexity for an 8%
5-year bond selling to yield 6%
2. Homework
a. Problems on P 540 No. 613-621
b. Questions on P 608-613
1. 学生对债券定价的基本原理已经比较熟悉。
2. 对债券价格受利率影响的原理比较熟悉，但是对利率变动的预测方法
和理论理解不够深入，特别是利率的期限结构及其理论在实际生活中
的意义和使用不够理解。
课后 3. 债券利率风险的理解是个难点，特别是价格风险和再投资风险的假设
小结
和含义是难以理解的地方，需要加以特别的解释。
4. 债券价格敏感性的概念是个难点，价格-收益曲线的凸性、价格对利率
的敏感性与债券基本特征之间的关系也是难点，需要大量的解释和示
范。
5. 将利率理论和价格敏感性讨论结合进行债券甄选是本章特别需要强调
65
的一种实践能力，也是一个非常综合性的问题，有助于学生将所有经
济学、金融学以及金融工具的基本理论加以综合利用和思考，应该加
强这方面的训练。
6. 债券的凸性和有嵌入式期权的债券的利率风险问题是难点，学生比较
难以理解，这部分不是基本要求，对难度需要加以控制。
66
Chapter 9
Stock-Market analysis
学 时 ： 4 sections
Chapter 9
授课 章节（单元、专题）
内容 内
容
Stock-Market analysis
Questions to be answered:
教学
目标
与要
求
教学
重点
与难
点
1. How do we apply the basic reduced form dividend discount model
(DDM) to the valuation of the aggregate stock market?
2.
What would be the prevailing value of the market as presented by
the S&P 400 based upon the reduced form DDM?
3.
What would be the prevailing value of the market (S&P 400)
based upon the value of free cash flow to equity (FCFE) model?
4.
What are the two components involved in the two-part valuation
procedure?
5.
Given the two components in the valuation procedure, which is
more volatile?
6.
What steps are involved in estimating the earnings per share for
an aggregate market series?
7.
What variables affect the aggregate operating profit margin and
how do they affect it?
8.
What are the variables that determine the level and changes in
the market earnings multiplier?
9.
How do you arrive at an expected market value and an expected
rate of return for the stock market?
10.
What has happened to the values for the other relative valuation
ratios - i.e., the P/BV, P/CF, and P/S ratios?
11.
What additional factors must be considered when you apply this
microanalysis approach to the valuation of stock markets around the
world?
12.
What are some differences between stock market statistics for the
U.S. versus other countries?
Emphasis：
1. applying the DDM valuation model to the market
2. estimating the growth rate of dividends(g)
3. valuation using the relative valuation approach
4. estimating expected earnings per share
5. estimate the earnings multiplier for a stock-market series
6. calculating the expected rate of return on common stocks
7. analysis of world market
Difficulties：
1. applying the DDM valuation model to the market
67
2. estimating the growth rate of dividends(g)
3. valuation using the relative valuation approach
4. estimating expected earnings per share
5. estimate the earnings multiplier for a stock-market series
6. calculating the expected rate of return on common stocks
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
课件来源
Self-designed
段
学
时
4 sections
教学
内容
与
时间
安排
1. applying the DDM valuation model to the
market
2. estimating the growth rate of dividends(g)
3. valuation using the relative valuation
approach
4. estimating expected earnings per share
5. estimate the earnings multiplier for a
stock-market series
6. calculating the expected rate of return on
common stocks
7. Discussion
0.5 section
0.5 section
0.5 section
0.5
0.5
0.5
0.5
section
section
section
section
0.5 section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
I.
Applying the DDM Valuation Model to the Market
讲课
提纲
与板
书设
计
A.
Stock Market Multiplier:
1. Varies widely over time
2. Has a big impact on changes in the value of the market
3. Very small changes in either k or g can affect the spread
between k and g and change the value of the aggregate
market substantially
B.
Market Valuation Using the Reduced Form DDM
1. The Nominal Risk-Free Rate
2. The Equity Risk Premium
3. The Current Estimate of Risk Premium and k
II.
Estimating the Growth Rate of Dividends (g)
68
A.
Growth Rate
1. Is equal to:
a. Retention rate - the proportion of earnings retained and
reinvested
b. Return on equity (ROE) – rate of return earned on
investment
c. An increase in either or both of these variables causes an
increase in the expected growth rate (g) and an increase in
the earnings multiplier
2. Combining the Estimates
B.
Market Valuation Using the Free Cash Flow to Equity (FCFE)
Model
1. The Constant Growth FCFE Model
2. The Two-Stage Growth FCFE Model
III.
A.
B.
IV.
Valuation Using the Relative Valuation Approach
Two-Part Valuation Procedure
Importance of Both Components of Value
1. Estimate future earnings per share for the stock-market series
2. Estimate future earning multiplier for the stock-market series
Estimating Expected Earnings Per Share
A.
Estimating Gross Domestic Product (GDP)
B.
Estimating Sales per Share for a Market Series
C.
Estimating Aggregate Operating Profit Margin
1. Capacity Utilization Rate
2. Unit Labor Cost
3. Rate of Inflation
4. Foreign Competition
D.
Estimating Depreciation Expense
E.
Estimating Interest Expense
F.
Estimating the Tax Rate
G.
Calculating Earnings Per Share: An Example
V.
Estimating the Earnings Multiplier For a Stock-Market Series
69
A.
Determinants of the Earnings Multiplier
B.
Estimating the Required Rate of Return (k)
C.
Estimating the Growth Rate of Dividends (g)
D.
Estimating the Dividend-Payout Ratio (D1/E1)
E.
Estimating an Earnings Multiplier: An Example
1. The Direction of Change Approach
2. Specific Estimate Approach
F.
Calculating the Estimate of the Value for the Market Series
VI.
A.
VII.
Calculating the Expected Rate of Return on Common Stocks
Other Relative Valuation Ratios
1. Analysts compare these ratios to similar ratios for the
aggregate market, other industries and stocks within an
industry
2. Calculation of Relative Valuation Ratios
a. Price-to-book-value (P/BV) ratio
b. Price-to-cash-flow (P/CF) ratio
c. Price-to-sales (P/S) ratio
Analysis of World Markets
A.
Goldman, Sachs & Company Model
B.
Individual Country Analysis
Class Discussion:
1．USE THE FOLLOWING INFORMATION FOR THE NEXT THREE PROBLEMS
Assume that the dividend payout ratio will be 75 percent when the rate on
本章
long-term government bonds falls to 8 percent. Since investors are becoming
思考
more risk averse, the equity risk premium will rise to 7 percent and investors will
题
require a 15 percent return.
(d) 1
The return on equity will be 12 percent.
What is the expected sustainable growth rate?
a) 9.0%
b) 7.2%
70
c) 6.0%
d) 3.0%
e) 3.6%
(b) 2
(d) 3
What is your expectation of the market P/E ratio?
a) 3.92
b) 6.25
c) 6.67
d) 8.33
e) 12.00
To what price will the market rise if the earnings expectation is
$32.00?
a) $384.00
b) $266.56
c) $213.44
d) $200.00
e) $125.44
2．USE THE FOLLOWING INFORMATION FOR THE NEXT
11 PROBLEMS
Consider the following information that you propose to use to obtain an estimate of
year 2002 EPS for the MacLog Company.
Year 2001
10,500 Billion
GDP
GDP growth
Sales per share
$875
Operating profit margin
Depreciation/Fixed Assets
Fixed asset turnover
Interest rate
Total asset turnover
Debt/Total assets
Tax rate
EstimatedYear 2002
1.5%
12%
14%
2
5.25%
0.7
45%
36%
In addition a regression analysis indicates the following relationship between
growth in sales per share for MacLog and GDP growth is
%∆ Sales per share = 0.015 + 0.75(%∆ GDP)
(c) 1
Calculate GDP for the year 2002
a)
$10,500 billion
b)
$11,000 billion
71
c)
d)
e)
$10,657.5 billion
$10,550.5 billion
$11,025.75 billion
(d) 2
Estimate the firm’s growth rate in sales per share
a)
1.5%
b)
2%
c)
2.16%
d)
2.63%
e)
3.73%
(a) 3
Estimate the firm’s sales per share for the year 2002
a)
$898.01
b)
$900.0
c)
$885.03
d)
$925
e)
$850
(e) 4
Calculate the firm’s year 2002 EBITDA per share
a)
$95.05
b)
$87.15
c)
$102.56
d)
$104.73
e)
$107.76
(a) 5
year 2002
Obtain an estimate of the per share depreciation charge for the
a)
b)
c)
d)
e)
$62.86
$102.35
$53.68
$75.93
$65
(b) 6
Calculate the per share EBIT for the year 2002
a)
$35
b)
$45
c)
$55
d)
$65
e)
$75
(d) 7
Calculate the firm’s level of Total Assets per share for the year 2002
a)
$1050
b)
$1065.67
c)
$1213.58
72
d)
e)
$1282.87
$1385.77
(a) 8
Calculate the firm’s level of debt for the year 2002
a)
$577.29
b)
$600.75
c)
$637.67
d)
$485.98
e)
$393.72
(a) 9
Calculate the per share interest rate charge for the year 2002
a)
$30.31
b)
$57.72
c)
$60.07
d)
$63.76
e)
$48.59
(e) 10
Calculate the firm’s EBT per share for the year 2002
a)
$13.29
b)
$17.89
c)
$18.75
d)
$19.63
e)
$14.59
(b) 11
Calculate the firm’s EPS for the year 2002
a)
$5.25
b)
$9.34
c)
$7.25
d)
$12.56
e)
$8.57
Case study: Baosteel Co.
Learning after class:
1. Homework
a. Problems on P 722
b. Questions on P 722-724
1. 本章是前面关于证券定价基本原理一章的延续，学生对股票定价的基
本原理已经比较熟悉，但是本章强调的是将整个市场中所有证券的组
课后
合，即市场指数作为一个证券进行定价，因此是对于市场的一个微观
小结
定价，与证券投资分析中的宏观分析不同，这一点需要解释清楚。
2. 学生对这个证券价格的定价原理和计算比较熟悉，但是对各种变量的
决定因素和输入变量的选择不够理解。
73
3. 本章是一个比较务实的章节，因此需要结合实际中的定价方法、教会
学生如何寻找输入变量进行简单的计算，这是本章的难点。
74
Chapter 10
Industry analysis
学 时 ： 4 sections
Chapter 10
授课 章节（单元、专题）
内容 内
容
Industry analysis
Questions to be answered:
教学
目标
与要
求
教学
重点
与难
点
1. How do we apply the basic reduced form dividend discount model
(DDM) to the valuation of the aggregate stock market?
2.
What would be the prevailing value of the market as presented by
the S&P 400 based upon the reduced form DDM?
3.
What would be the prevailing value of the market (S&P 400)
based upon the value of free cash flow to equity (FCFE) model?
4.
What are the two components involved in the two-part valuation
procedure?
5.
Given the two components in the valuation procedure, which is
more volatile?
6.
What steps are involved in estimating the earnings per share for
an aggregate market series?
7.
What variables affect the aggregate operating profit margin and
how do they affect it?
8.
What are the variables that determine the level and changes in
the market earnings multiplier?
9.
How do you arrive at an expected market value and an expected
rate of return for the stock market?
10.
What has happened to the values for the other relative valuation
ratios - i.e., the P/BV, P/CF, and P/S ratios?
11.
What additional factors must be considered when you apply this
microanalysis approach to the valuation of stock markets around the
world?
12.
What are some differences between stock market statistics for the
U.S. versus other countries?
Emphasis：
1. why do industry analysis
2. the business cycle and industry sector
3. structure economic changes and alternative industries
4. estimating industry rates of return
5. industry analysis using the relative valuation approach
6. other relative valuation ratios
7. global industry analysis
Difficulties：
1. why do industry analysis
75
2. the business cycle and industry sector
3. structure economic changes and alternative industries
4. estimating industry rates of return
5. industry analysis using the relative valuation approach
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
课件来源
Self-designed
段
学
时
4 sections
1. why do industry analysis
2. the business cycle and industry sector
教学
3. structure economic changes and alternative
内容
industries
与
4. estimating industry rates of return
时间
5. industry analysis using the relative valuation
安排
approach
6. discussion
0.5 section
1
section
0.5 section
0.5 section
0.5 section
1
section
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
I.
Why Do Industry Analysis?
A.
讲课
提纲
与板
书设
计
Cross-Sectional Industry Performance
1. There is a wide variation in industry performance. Therefore,
industry analysis is important and necessary to uncover
substantial performance differences among industries that will
help identify both unprofitable and profitable opportunities.
B.
Industry Performance Over Time
1. Industries do not perform consistently over time.
you must estimate future values of key variables.
C.
Therefore,
Performance of Companies Within An Industry
1. There are wide performance differences across companies
within most industries. Therefore, company analysis is
necessary.
2. Implication of Dispersion within Industries
76
D.
Differences in Industry Risk
1. Risk between industries differs, which means it is necessary to
analyze it.
2. Risk measures for individual industries are relatively stable over
time. Therefore, historical risk measures may be of value.
E.
Summary of Research on Industry Analysis
F. Industry Analysis Process
II. The Business Cycle and Industry Sectors
Economic trends can and do affect industry performance
By identifying and monitoring key assumptions and variables, we
can monitor the economy and gauge the implications of new information
on our economic outlook and industry analysis
A.
Cyclical or Structural Changes
1. Cyclical changes in the economy arise from the ups and downs
of the business cycle
2. Structure changes occur when the economy undergoes a major
change in organization or how it functions
B.
Rotation strategy is when one switches from one industry
group to another over the course of a business cycle
C.
Economic Variables and Different Industries
1. Inflation
2. Interest Rates
3. International Economics
4. Consumer Sentiment
III.
Structural Economic Changes and Alternative Industries
A.
Demographics
B.
Lifestyles
C.
Technology
D.
Politics and Regulations
77
IV.
Evaluating the Industry Life Cycle
A.
Five Stage Model
1. Pioneering Development
2. Rapid Accelerating Growth
3. Mature Growth
4. Stabilization and market maturity
5. Deceleration of growth and decline
V.Analysis of Industry Competition
A.
Competition and Expected Industry Returns
Porter’s concept of competitive strategy is described as the
search by a firm for a favorable competitive position in an industry
To create a profitable competitive strategy, a firm must first
examine the basic competitive structure of its industry
The potential profitability of a firm is heavily influenced by
the profitability of its industry
1. Porter’s Five Competitive Forces
a. Rivalry among the existing competitors
b. Threat of new entrants
c. Threat of substitute products
d. Bargaining power of buyers
e. Bargaining power of suppliers
VI.
Estimating Industry Rates of Return
A.
Valuation Using the Reduced – Form DDM
1. Estimating the Required Rate of Return (k)
a. Fundamental risk factors: business risk, financial risk, liquidity
risk, exchange rate risk, and country risk
b. Systematic Risk
2. Estimating the Expected Growth Rate (g)
a. Earnings Retention Rate
b. Return on Equity
c. Combining the Estimates
B.
Industry Valuation Using the Free Cash Flow to Equity
(FCFE) Model
1. The Constant Growth FCFE Model
2. The Two-Stage Growth FCFE Model
VII.
Industry Analysis Using the Relative Valuation Approach
78
A.
The Earnings Multiple Technique
1. Estimating Earnings Per Share
a. Forecasting Sales Per Share
b. Time-Series Analysis
c. Input-Output Analysis
d. Industry-Economy Relationships
e. Demonstrating a Sales Forecast
2. Forecasting Earnings Per Share – Earnings Forecasting and the
Analysis of Industry
Competition
B.
Industry Profit Margin Forecast
1. The Industry’s Operating Profit Margin
2. Industry Depreciation
3. Industry Interest Expense
4. Estimating Interest Expense
5. Industry Tax Rate
C.
An Industry Earnings Estimate Example
D.
Estimating an Industry Earnings Multiplier
1. Macroanalysis of an Industry Multiplier – Why a relationship?
2. Microanalysis of an Industry Multiplier
3. Industry Multiplier Versus the Market Multiplier
4. Comparing Dividend-Payout Ratios
5. Estimating the Required Rate of Return
6. Estimating the Expected Growth Rate (g)
7. Industry Expected Value and Rate of Return
VIII. Other Relative Valuation Ratios
A.
The Price/Book Value Ratio
B.
The Price/Cash Flow Ratio
C.
The Price/Sales Ratio
IX.
Global Industry Analysis
A.
The macroeconomic environment in the major producing
and consuming countries for this industry
B.
An overall analysis of the significant companies in the
79
industry and the products they produce
C.
What are the accounting differences by country and how do
these differences impact the relative valuation ratios?
D.
What is the effect of currency exchange rate trends for the
major countries?
Class Discussion:
1．Question on P 772 No.16
（a）
SUV Model
Identify Current Stage in Product Life Cycle
(circle one)
and Justify Your Choice
Raven
Declining
The number of Raven SUV units sold has declined
since its peak in 1997 and the decline is expected to
accelerate in 1999 and 2000.
Hawk
Mature
The rate of increase in the number of Hawk SUV
units sold has slowed and the number sold is
expected to increase only modestly in 1999 and
2000.
Eagle
Expanding
The number of Eagle SLTV units sold has
increased rapidly since its introduction in 1997 and
is expected to continue growing rapidly in 1999 and
2000.
本章
思考
题
（b）
The statement that Nelson Motors is enjoying increasing SUV
profitability is true. SUV Division profits have increased from $45 million
in 1990 to $1,311 million in 1998, with additional substantial increases
forecast for 1999 and 2000. The SLTV division has grown from
approximately 4% of Nelson Motors’ profits in 1990 to an estimated
52% of profits in 2000. The Eagle is primarily responsible for this profit
growth because of its high unit sales growth and greater profit per
vehicle compared to the Raven and the Hawk.
80
The second part of the statement, that Nelson Motors enjoys
declining earnings risk going forward, is not true. Nelson Motors is
relying heavily on the Eagle to take the place of the Raven, which is in
the declining phase of its life cycle, and the Hawk, which is in the
maturity phase of its life cycle. Note that Nelson Motors has no SUV
models other than the Eagle in the early phase of their life cycle. The
increasing dependence of Nelson on the profitability of the SUV
division increases the exposure of the company to developments that
would affect that product line.
In summary, while Nelson Motors may enjoy increased profitability due
to the success of the Eagle, the risk to earnings has actually increased
because the company is more dependent on one model in the future. In
the existing SUV product portfolio, the Raven and Hawk are aging, and
their contribution to Nelson's profits is dropping dramatically.
2．USE THE FOLLOWING INFORMATION FOR THE NEXT
11 PROBLEMS
Assume that you are an analyst for the U.S. autoparts industry. Consider
the following information that you propose to use to obtain an estimate of
year 2002 EPS for the U.S. Autoparts Industry
Year 2001
EstimatedYear 2002
Personal consumption expenditures
$6,800 billion
Personal consumption expenditures growth
Industry Sales per share
$525
Industry Operating profit margin
1.5%
15%
Industry Depreciation/Fixed Assets
Industry Fixed asset turnover
Interest rate
Industry Total asset turnover
Industry Debt/Total assets
Industry Tax rate
8.25%
3
6%
1.2
45%
36%
In addition a regression analysis indicates the following relationship
between growth in industry sales per share and personal consumption
expenditures (PCE) growth is
%∆ Sales per share = 0.02 + 1.5(%∆ PCE)
81
(c) 1
2002
Calculate personal consumption expenditures for the year
f)
g)
h)
i)
j)
$7,500 billion
$7,000 billion
$7140 billion
$7,550.5 billion
$6,825.75 billion
(d) 2
Estimate the industry growth rate in sales per share
f)
10.5%
g)
11%
h)
12.16%
i)
9.5%
j)
8.73%
(a) 3
Estimate the industry sales per share for the year 2002
f)
$574.9
g)
$600.0
h)
$585.03
i)
$625
j)
$550
(e) 4
Calculate the industry year 2002 EBITDA per share
f)
$95.05
g)
$89.15
h)
$92.56
i)
$94.73
j)
$86.23
(a) 5
Obtain an estimate of the per share depreciation charge
for the year 2002
f)
$15.81
g)
$12.35
h)
$23.68
i)
$25.93
j)
$35
(b) 6
Calculate the per share EBIT for the year 2002
f)
$95.33
g)
$70.42
h)
$85.56
i)
$95.89
82
j)
$75.32
(d) 7
Calculate industry Total Assets per share for the year 2002
f)
$450
g)
$565.67
h)
$513.58
i)
$479.07
j)
$385.77
(a) 8
Calculate industry level of debt for the year 2002
f)
$215.58
g)
$300.75
h)
$237.67
i)
$285.98
j)
$193.72
(a) 9
2002
Calculate the per share interest rate charge for the year
f)
g)
h)
i)
j)
$12.93
$17.72
$10.07
$13.76
$18.59
(e) 10
Calculate the industry EBT per share for the year 2002
f)
$53.29
g)
$67.89
h)
$68.75
i)
$59.63
j)
$57.49
(b) 11
Calculate industry EPS for the year 2002
f)
$45.25
g)
$36.79
h)
$57.25
i)
$32.56
j)
$48.57
Case study: bio-industry
Learning after class:
1. appendix
a. what is an industry
b. data needs for an industry analysis
83
c. insights on analyzing industry ROAs
2. Homework
a. Problems on P 772-774
b. Questions on P 775-776 8-9
1. 本章是前面关于证券市场定价基本原理一章的延续，学生对股票市场
定价的基本原理已经掌握，但是本章强调的是将某个行业中所有证券
的组合，即行业证券组合指数作为一个证券进行定价，因此是对于行
课后
业的一个微观定价，与本章前一部分关于行业的定性分析，即行业分
小结
析中的宏观分析不同，这一点需要解释清楚。
2. 本章继续强调证券定价模型中各种输入变量的选择和使用。
3. 本章是一个比较务实的章节，因此需要结合实际中的定价方法、教会
学生如何寻找输入变量进行简单的计算，这是本章的难点。
84
Chapter 11
Company analysis and stock valuation
学 时 ： 4 sections
Chapter 11
授课 章节（单元、专题）
内容 内
容
Company analysis and stock valuation
Questions to be answered:
1. Why is it important to differentiate between company analysis and
stock valuation?
2.
What is the difference between a growth company and a growth
stock?
3.
How do we apply the two valuation approaches and the several
valuation techniques to Walgreen?
4.
What techniques are useful when estimating the inputs to
alternative valuation models?
5.
What techniques aid estimating company sales?
6.
How do we estimate the profit margins and earnings per share for
a company?
7.
What factors are considered when estimating the earnings
multiplier for a firm?
8.
What two specific competitive strategies can a firm use to cope
with the competitive environment in its industry?
9.
In addition to the earnings multiplier, what are some other relative
教学
valuation ratios?
目标 10.
How do you apply the several present value of cash models to the
与要
valuation of a company?
求
11.
What value-added measures are available to evaluate the
performance of a firm?
12.
How do we compute economic value-added (EVA), market
value-added (MVA), and the franchise value for a firm?
13.
What is the relationship between these value-added measures
and changes in the market value of firms?
14.
When should we consider selling a stock?
15.
What is meant by a true growth company?
16.
What is the relationship between positive EVA and a growth
company?
17.
Why is it inappropriate to use the standard dividend discount
model to value a true growth company?
18.
What is the difference between no growth, simple growth, and
dynamic growth?
19.
What is the growth duration model and what information does it
provide when analyzing a true growth company and evaluating its
stock?
20.
How can you use the growth duration model to derive an estimate
85
of the P/E for Walgreens?
21.
What are some additional factors that should be considered when
analyzing a company on a global basis?
Emphasis：
1. company analysis versus the selection of stock
2. economic, industry, and structural links to company analysis
3. company analysis estimating intrinsic value
4. estimating company earnings per share
5. Walgreen t strategies
6. estimating company earnings multipliers
7. additional measures of relative value
8. analysis of growth companies measures of value-added
教学 9. site visits and the are of the interview
重点 10. when to sell
与难 11. influence on analysts
点
12. global company analysis
Difficulties：
1. company analysis versus the selection of stock
2. economic, industry, and structural links to company analysis
3. company analysis estimating intrinsic value
4. estimating company earnings per share
5. Walgreen t strategies
6. estimating company earnings multipliers
7. when to sell
教学 方法：讲授法、课堂讨论法现场教学法、自学指导法
方法 手段：板书设计及教具、图表、幻灯和录像、计算机、投影仪等
与手 使用多媒体
课件来源
Self-designed
段
学
时
4 sections
教学
内容
与
时间
安排
1. company analysis versus the selection of
stock
2. economic, industry, and structural links to
company analysis
3. company analysis estimating intrinsic value
4. estimating company earnings per share
5. Walgreen t strategies
6. estimating company earnings multipliers
7. discussion
0.5 section
0.5
0.5
0.5
0.5
0.5
1
section
section
section
section
section
section
86
基本内容
辅助手段：
1. 板书
2. 电子课件（教师自己编写和创作）
3. 案例教学
4. 课堂讨论
I. Company Analysis Versus the Selection of Stocks
A. Different factors determine the type of company and the type of
stock, which means the two are not the same - e.g., the stock of a
growth company is not necessarily a growth stock.
B. Growth Companies and Growth Stocks
Growth companies are those that consistently experience
above-average increases in sales and earnings
Growth stock is a stock with a higher rate of return than other stocks
in the market with similar risk characteristics
讲课
提纲
与板
书设
计
C. Defensive Companies and Defensive Stocks
Defensive companies are those whose future earnings are likely to
withstand an economic downturn
Defensive stocks are those whose rate of return is not expected to
decline during an overall market decline, or decline less than the overall
market
D. Cyclical Companies and Cyclical Stocks
Cyclical companies are those whose sales and earnings will be
heavily influenced by aggregate business activity
Cyclical stocks are those that will experience changes in their rates
of return greater than changes in overall market rates of return
E. Speculative Companies and Speculative Stocks
Speculative companies are those whose assets involve great risk
but those that also have a possibility of great gain
Speculative stocks possess a high probability of low or negative
rates of return and a low probability of normal or high rates of return
F. Value versus Growth Investing
Value investing involved identifying and investing in stocks that
appear to be undervalued for reasons other than earnings growth
potential
Growth stock investing involves identifying and investing in the
stock of companies that are experiencing rapid growth of sales and
87
earnings
II. Economic, Industry, and Structural Links to Company Analysis
The analysis of companies and their stocks is the final step in the
top-down approach to investing
A. Economic and Industry Influences
B. Structural Influences
III. Company Analysis – groups various analysis components for
discussion
IV. Firm Competitive Strategies
A. Defensive or Offensive Competitive Strategies
1. Defensive strategy involves positioning firm so that it its capabilities
provide the best means to deflect the effect of competitive forces in the
industry
2. Offensive strategy involves using the company’s strength to affect
the competitive industry forces, thus improving the firm’s relative
industry position
B. Porter's Competitive Strategies
1. Low-Cost Strategy – the low-cost producer, and hence the cost
leader in its industry
2. Differentiation Strategy – firm positions itself as unique in the
industry
C. Focusing a Strategy
Whichever strategy it selects, a firm must determine where it will
focus this strategy
D. SWOT Analysis
1. Strengths – give the firm a comparative advantage in the
marketplace
2. Weaknesses –when competitors have potentially exploitable
advantages over the firm
3. Opportunities – environmental factors that could favor the firm
4. Threats – environmental factors that could hinder the firm in
achieving its goals
E. Some Lessons from Lynch
1. Favorable Attributes of Firms
88
a. Firm’s product should not be faddish
b. Firm should have some long-run comparative advantage over its
rivals
c. Firm’s industry or product has market stability
d. Firm can benefit from cost reductions
e. Firms that buy back shares show there are putting money into the
firm
F.
1.
2.
3.
4.
Tenets of Warren Buffet
Business Tenets
Management Tenets
Financial Tenets
Market Tenets
V. Estimating Intrinsic Value
A. Present Value of Dividends
1. Growth Rate Estimates
2. Required Rate of Return Estimate
B. The Present Value of Dividends Model (DDM)
C. Present Value of Free Cash Flow to Equity
D. Present Value of Operating Free Cash Flow
1.
Calculation of WACC
E. Relative Valuation Ratio Techniques
1. Price-Earnings Ratio
VI. Estimating Company Earnings Per Share
A. Company Sales Forecast
1. Sample Estimate of Walgreens Sales
B. Estimating the Company Profit Margin
VII. Walgreens Competitive Strategies
A.
1.
2.
3.
4.
The Internal Performance
Industry Factors
Company Performance
Net Profit Margin Estimate
Computing Earnings Per Share
89
VIII.
Estimating Company Earnings Multipliers
A. Macroanalysis of the Earnings Multiplier
B.
1.
2.
3.
4.
5.
Microanalysis of the Earnings Multiplier
Comparing Dividend-Payout Ratios
Estimating the Required Rate of Return
Estimating the Expected Growth Rate
Computing the Earnings Multiplier
Estimate of the Future Value for Walgreens
C. Making the Investment Decision
1. Comparing Expected Rate of Return to Required Rate of Return
IX. Additional Measures of Relative Value
A. Price/Book Value Ratio
B. Price/Cash Flow Ratio
C. Price/Sales (P/S) Ratio
D. Summary of Relative Valuation Ratios
X.
A.
B.
C.
D.
E.
F.
G.
1.
2.
3.
4.
Analysis of Growth Companies
Growth Company Defined
Actual Returns Above Expected Returns
Growth Companies and Growth Stocks
Growth Companies and the Dividend Discount Model
Alternative Growth Models
No-Growth Firm
Long-Run Growth Models
Simple Growth Model
Negative Growth Model
What Determines the Capital Gain Component?
Dynamic True Growth Model
H. The Real World
XI. Measures of Value-Added
A. Economic Value Added (EVA)
1. EVA Return on Capital
90
2. An Alternative Measure of EVA
B.
C.
D.
E.
1.
2.
a.
3.
Market Value-Added (MVA)
Relationships Between EVA and MVA
The Franchise Factor
Growth Duration
Computation of Growth Duration
Intra-Industry Analysis
An Alternative Use of T
Factors To Consider
XII. Site Visits and the Art of the Interview
XIII.
When To Sell
XIV.
Influences on Analysts
A. Efficient Markets
B. Paralysis of Analysis
C. Analyst Conflicts of Interest
XV. Global Company and Stock Analysis
A. Availability of Data
B. Differential Accounting Conventions
C. Currency Differences (Exchange Rate Risk)
D. Political (Country) Risk
E. Transaction Costs
F. Valuation Differences
G. Summary
Class Discussion:
1．Question on P 866 No.24
(a)i.
本章 Return on equity is the product of three components: profitability (net
思考 profit margin, Higgins’ “P”), asset turnover ratio Higgins’ “A”), and
题 financial leverage or equity multiplier (asset-to-equity ratio, Higgins’ “T”):
Net profit margin (P) = net income after tax/Sales = 80/598 = 13.379%
X
Total asset turnover (A) = Sales/Assets = 598/815 = 0.7337
X
Financial leverage (T) = Assets/Equity = 815/674 = 1.2092
91
(a)ii.
Return on Equity = Net income after tax/Equity = 11.8694%
(a)iii.
If the firm maintains the current capital structure and a stable dividend
payout rate, the sustainable rate of growth is defined by the product of
ROE, which was calculated above, and the retention rate (1 minus the
dividend payout rate), which can be determined from Table 17.
Sustainable growth rate = ROE x Retention Rate = 11.8694% x (1 –
24/80) = 8.3086%
(b).
Effect on Sustainable
Component Directly
Growth Rate
Affected (If any)
Proposal
(Circle One)
Increase in quarterly
Decrease
Retention rate (R)*
Increase
Financial leverage or
dividend
Bond Issue
equity multiplier**
Stock split
No Effect
None***
Given that other factors remain unchanged:
* An increase in the dividend payout ratio lowers the retention rate
(R) and therefore decreases the sustainable growth rate.
** An increase in the debt ratio raises the financial leverage or equity
multiplier (T) and therefore increases the sustainable growth.
*** A stock split affects none of the components and therefore does not affect the
sustainable growth rate.
2．USE THE FOLLOWING INFORMATION FOR THE NEXT 5 PROBLEMS
You are provided with the following information on Kayray Corporation.
Your ultimate objective is to calculate the EVA for the firm.
LIFO reserve
Net
plant,
equipment
60
property,
and
1325
92
Other assets
Goodwill
Accumulated Goodwill amortized
PV of Operating leases
Tax benefit from interest on
expenses
Tax benefit from interest on
leases
Taxes on non-operating income
Implied interest on op.
lease
Increase
in
LIFO
reserve
Goodwill amortization
Operating profit
Income tax expense
Net working capital
WACC
30
325
65
140
10
5
2
9.5
12
15
550
215
440
0.12
(a) 1 Calculate the adjusted operating profits before taxes.
a)
$586.5
b)
$225.64
c)
$825.23
d)
$831.56
e)
$692.5
(b) 2 Calculate the cash operating expenses for the firm
a)
225
b)
228
c)
232
d)
242
e)
252
(d) 3 Calculate the capital for the firm
a)
1725
b)
1953
c)
2524
d)
2385
e)
1987
(a) 4 Calculate the dollar cost of capital
a)
286.2
b)
207
c)
234.36
93
d)
e)
238.44
302.9
(b) 5 Calculate the firm’s EVA
a)
85.2
b)
72.3
c)
65.8
d)
89.5
e)
78.2
Case study
Learning after class:
1. Homework
a. Problems on P 861 18-22
b. Questions on P 852-853
1. 本章是前面关于证券市场定价、行业定价基本原理一章的延续，学生
对股票市场、行业定价的基本原理已经掌握，但是本章强调的是对具
体的公司进行分析和股票定价，
是 top-down process 的最后一个环节。
2. 本章继续强调证券定价模型中各种输入变量的选择和使用。
课后
3. 本章是一个比较务实的章节，重点在于第一是证券定价理论的使用，
小结
第二是公司竞争战略和市场竞争结构的分析，以及公司竞争优势的判
断，因此 Porter 的五因素分析模型和 SWOT 分析方法的使用是非常
重要的，而这一部分的内容超出了单纯的金融分析和理论的范畴，要
求学生对管理学的有关理论和知识有全面的掌握。
94