Essentials of Corporate Finance chap010.pptVIP

* * * * * Be sure to emphasize that you do not have to actually sell the stock for you to earn the dollar return. The point is that you could. * Note that the “dividend” yield is really just the yield on intermediate cash flow * You might want to point out that total percentage return is also equal to total dollar return / beginning price. Total percentage return = 6.25 / 35 = 17.86% * * * Click on each of the excel icons to see a chart of year-to-year returns similar to the charts in the text. The charts were created using the data in Table 10.1. * * * Ask the students to think about why the different investments have different risk premiums. * * * Remind students that the variance for a sample is computed by dividing by the number of observations – 1 The standard deviation is just the positive square root of the variance * * * * * * * * Point out that one consequence of the wider availability of information and lower transaction costs is that the market will be more volatile. It is easier to trade on “small” news instead of just big events. It is also important to remember that not all available information is reliable information. It’s important to still do the research and not just jump on everything that crosses the news wire. The case of Emulex, discussed earlier, is an excellent example. * * Students are often very interested in insider trading. See the IM for a more detailed discussion. * Empirical evidence suggests that some stocks are semistrong form efficient, but not all. Larger, more closely followed stocks are more likely to be semistrong form efficient. Small, more thinly traded stocks may not be semistrong form efficient but liquidity costs may wipe out any abnormal returns that are available. * Emphasize that, while technical analysis shouldn’t lead to abnormal returns, that doesn’t mean that you won’t earn fair returns using it – efficient markets imply that you will. You might also want to point out that there are many technical trading rule