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Investments:Review for Midterm

Business Administration 365

Professor Scott Hoover

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Introduction Investments

definition Three primary elements

The Investment Process Establish Investment Policy Analyze Securities Build a Portfolio Continual Monitoring and Updating of Portfolio Performance Evaluation

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Important Concepts time value of money the risk vs. return relationship

diversification market efficiency

Can we beat the benchmark?

Cautions

Who values stocks? Objectives

Perceptions vs. Reality

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Prices and Great Investors Market Structure

Participants Orders

Prices and Quotes terminology limit order book principles of market making How are prices determined? market efficiency

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Great Investors S&P 500 Index Warren Buffett Peter Lynch Bill Miller

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Time Value of Money Present value Future value Growing annuities

formulas How do we use those formulas?

Retirement application

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Financial Statement Analysis Purpose DuPont Analysis

Layered approach Three primary factors

profit margin asset turnover leverage multiplier

Applications

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Risk and Return What is risk? How are risk and return related? The CAPM

intuition application problems with applying the CAPM

The WACC

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Exam Structure True/False: 12 questions, 24 points Qualitative: 3 questions, 36 points Quantitative: 3 questions, 40 points

Notes The exam covers chapters 1-6 in your book The Warren Buffett Way will not be covered on the midterm Special emphasis on…

time value of money risk-return relationship

Results from homeworks are fair game.