CHAPTER 6 – PORTFOLIO THEORY AND THE CAPITAL

ASSET PRICING MODEL

1. Expected return of a single stock, n-year / in different economies
2. Variance and Standard Deviation of return of a stock. Standard deviation measures total risk.
3. CFO dựa trên return (mean %) và total risk (SD %) để ra quyết định tài chính. Nguyên tắc ra
quyết định tài chính đó là: Giữa 2 khoản đầu tư có cùng TSSL (mean %) thì chọn khoản đầu
tư có RR thấp hơn (SD %), và ngược lại.
4. Đo lường mối quan hệ cùng chiều hay nghịch chiều giữa 2 khoản đầu tư thì dùng Covariance
(Hiệp phương sai) và Correlation Coefficient (Hệ số tương quan). Covariance measures the
interrelationship between two securities. The correlation measures the direction of
movement between the returns of two stocks. If the correlation coefficient between Stock A
and Stock B is +0.6, the correlation between Stock B with Stock A will be +0.6.
5. Một stock sẽ chịu 2 loại rủi ro: unique risk (RR riêng biệt) và market risk (RR thị trường).
6. Giảm RR riêng biệt bằng cách diversification (đa dạng hóa) danh mục đầu tư. The principle
of diversification tells us that spreading an investment across many diverse assets will lower
a portfolio's level of risk.
7. Expected return of a portfolio.
• When computing the expected return on a portfolio of stocks the portfolio weights are
based on the market value of the total shares held in each stock.
• The expected return on a portfolio is limited by the returns on the individual securities
within the portfolio.
8. Variance and Standard Deviation of return of a portfolio.
9. Beta measure indicates the change in the rate of return on an investment for a given change in
the market return.
Example: Beta of Treasury bills is 0. Beta of the market portfolio is +1.0
10. Mô hình định giá tài sản vốn (CAPM) => một cách khác để tính TSSL của vốn đầu tư. The
capital asset pricing model (CAPM) states that the expected risk premium on an investment
is proportional to its beta
CHAPTER 7 – RISK AND THE COST OF CAPITAL
1. Market risk premium = 𝑟𝑚 – 𝑟𝑓
2. Generally, the value to use for the risk-free interest rate is short-term Treasury bill rate.
3. Cost of capital is the same as cost of equity for firms financed entirely by equity.
4. The cost of capital for a project depends on the use to which the capital is put, i.e. the project.
5. The hurdle rate for capital budgeting decisions is the cost of capital.
6. Weighted average cost of capital (WACC): is the company cost of capital when debt as well as
equity is used for financing.
7. The after-tax weighted average cost of capital (WACC) is calculated using the formula:
𝑊𝐴𝐶𝐶 = 𝑟𝐷 × (1 − 𝑇𝑐 ) × 𝐷 𝑉 + 𝑟𝐸 × 𝐸 𝑉 where: V = D + E
8. Using the company cost of capital to evaluate a project is correct for projects that are about as
risky as the average of the firm's other assets.
9. Cost of equity can be estimated using: Discounted cash flow (DCF) approach, Capital Asset
Pricing Model (CAPM), Arbitrage Pricing theory (APT), The Fama-French three-factor model
CHAPTER 9 – WORKING CAPITAL MANAGEMENT
1. The following are the types of inventories: raw material, work in process, finished goods.
2. The costs of holding inventory are carrying cost and order cost.
3. The economic order quantity (EOQ) is calculated using:
𝑄 = √ 2 × 𝑠𝑎𝑙𝑒𝑠 × 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟 𝑐𝑎𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡
4. In the EOQ inventory model, the optimal order size is achieved when carrying costs = order
costs.
5. When credit is granted to another firm this gives rise to an Accounts receivable.
6. Accounts receivables include Trade credit and Consumer credit.
7. Examples of transactions involve credit: 2/30, net 60 or 2/10 EOM, net 60.
8. If a firm grants credit with terms of 3/10 net 30, the creditor receives a discount of 3% when
payment is made in less than 10 days after the sale.
9. The net credit period for a company with terms of 3/10 net 60 is 50 days.
10. The most important source of short-term financing is bank loan.
11. A large firm may hold substantial cash balances because these balances are required by the
bank in the form of compensating balances.
12. The market for short-term investments is called money market.