Corporate issuers

- Historical equity risk premium approach gives a good indicator of the expected equity
risk premium. Limitations include i.) the level of risk of the stock index may change over
time ii.) resulting estimates are sensitive to the estimations method
- Flotation costs are a cash outflow. It is a one-time cash outflow that occurs at the
initiation of a project

Alternative investments
- Trading NAV: NAV for a hedge fund that reflects liquidity discounts
Reporting NAV: NAV for quoted market prices
- Inefficiency of alternative investments exists in the form of illiquidity versus traditional
asset classes -> will not reflect new information as quickly, leading to a form of market
inefficiency called informational inefficiency
- REIT - trade at prices which differs from its NAV per share (at a discount or premium)
- Hedge fund activist strategy focuses on the purchase of sufficient equity in order to
influence company’s policies or direction
- Commodity indexes, to be transparent, investable and replicable will use the prices of
the futures contracts on the commodities in the index.

Derivates
- Derivative contracts have a definitive life span and expire on a specified date outlined in
the contract itself
- The value of a European put option is inversely related to the risk-free rate
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