文档介绍：Objective
Explain the principles of
asset evaluation
Chapter 7: Principles of Asset Valuation
Chapter 7 Contents
The relationship between an asset’s value & price
Value maximization & financial decisions
Accounting measures of value
How information is reflected in security prices
The efficient markets hypothesis
The law of one price & arbitrage
Interest rates & the law of one price
Exchange rates & triangular arbitrage
Valuation parables
Valuation Models
The Role of Asset Valuation
The process of estimating how much an asset is worth.
At the heart of much of financial decision making
Investing in securities
Investing in real estate
Wealth (value) maximization
Venture capital
Financing
Mergers and acquisition (M&A)
Others
The Principle of Asset Valuation
Arbitrage & Law of One Price: The prices of equivalent assets must be the same.
Use information about one or parables whose market prices we know.
Market price & fundamental value: The price of well-informed investors must pay for it in a free petitive market.
Value maximization and irrelevance of risk preference, consumption and expectations.
Market Value & Book Value
You buy a house for $100,000 on January 1, 19X0 and rent it out to make a profit.
You finance the purchase with $20,000 of your own money (equity financing) and an $80,000 mortgage loan from a bank (debt financing).
On January 2, someone makes you a bona fide offer of $150,000, which is the market value.
Market Price & Fundamental Value
— QRS Pharmaceuticals Corporation
How is the stock market reacting to the information?
Announcements of good news: QRS’ research scientists have just discovered a drug that can cure mon cold.
Announcements of bad news: A judge has just ruled against QRS Pharmaceuticals in a lawsuit involving the payment of millions of dollars pensation to customers who bought one of its products.
Efficient Market Hypothesis (EMH)
An asset’s current price fully reflects all publicly available information about future ec