Expected Values, Variances, and Standard Deviations
Expected Value Expected value is an essential quantitative concept investors use to estimate investment returns and analyze any factor that may impact their financial position. Mathematically, the expected value is the probability-weighted average of the possible outcomes of the random…
Portfolio Risk Measures
Modern Portfolio Theory (MPT) evaluates investment options based on mean return and return variance. This approach is applicable when investors are risk-averse, meaning they seek to maximize their expected satisfaction or utility from their investments. Mean-return analysis holds under two…
Covariance, Correlation, and Joint Probability
Historical covariance or other techniques, such as market model regression with historical return data, can help us forecast return covariance and correlation. We use the joint probability function of the random variables for this estimation. The probability that values of…
Portfolio Expected Return and Variance of Return
A portfolio is a collection of investments a company, mutual fund, or individual investor holds. It consists of assets such as stocks, bonds, or cash equivalents. Financial professionals usually manage a portfolio. Portfolio Expected Return To calculate the portfolio’s expected…
Cash Flow Additivity
A timeline is a physical illustration of the amounts and timing of cashflows associated with an investment project. For cashflows that are regular and of equal amounts, the standard annuity formula or the financial calculator can be used. However, a…
Implied Return and Growth
Implied Return for Fixed-Income Instruments The growth rate is the rate at which the market expects an asset to grow. On the other hand, implied return reflects a return based on the current price and future security cash flows. Consider…
Introduction to the Time Value of Money in Finance
The time value of money (TVM) is a fundamental financial concept. It emphasizes that a sum of money is worth more in the present than in the future. There are three key reasons supporting this principle: Time value of money…
Publicly and Private Owned Corporate Issuers
A corporation can either be regarded as private (unlisted) or public (listed). The following factors determine this classification: Master corporate ownership concepts with our Free Trial. Going from Private Company to Public Company A private company can go public through an Initial…
Features of Corporate Issuers
In this section, we shall delve more into corporations. Corporate issuers are corporations that raise their capital in financial markets. Understanding corporate issuers is essential for financial analysts because they can raise more capital from investors than governments worldwide. Key…
Compare the organizational forms of business
Generally, there are three major organizations in market economies, each with specific reasons, stakeholders, and a governing legal framework. The three are: Under for-profits or simply businesses, there are three business structures: We concentrate on the for-profits (businesses/companies) in the…
