Valuation of shares Flashcards
1
Q
What are the benefits of a well run stock exchange?
A
- Firms can find funds and grow
- Allocation of capital
- For shareholders
- Status and publicity
- Mergers
- Improves corporate behaviour
2
Q
What’s a disadvantage of ordinary shares for investors?
A
They’re usually last in queue to have their claims met
3
Q
What are some determinants of growth?
A
- Quantity of resources retained and reinvested within the business
- The rate of return earned on retained resources
- Rate of return on existing assets
- Additional finance
4
Q
How can we quantify the likely risk and return of any investment?
A
- Use probabilities to attach numbers to the likelihood of each state of the world occuring
- Look at historical prices
5
Q
What is an expected return formula?
A
∑ piri
ri = possible return
pi = possibility of this return
6
Q
What is standard deviation in terms of variance?
A
Square root of variance
7
Q
What is the most common measure of risk used in the theory of investment?
A
Standard deviation
