Capital Markets Introduction PDF

CAPITAL MARKETS Prof. Arman V. Cruz CBFS- Faculty  Financial Investment Direct Market-based Investment Investment MARKET CAPITAL CAPITAL MARKET CAPITA L CAPITAL MARKET defined  A place where bu...

CAPITAL MARKETS Prof. Arman V. Cruz CBFS- Faculty  Financial Investment Direct Market-based Investment Investment MARKET CAPITAL CAPITAL MARKET CAPITA L CAPITAL MARKET defined  A place where buyers and sellers engage in trade of financial securities  Trades mostly long-term securities  Helps to channel surplus funds from investors to businesses or government  Made up of buyers, sellers, intermediaries, regulators, etc. CAPITAL MARKETS EQUITY VS DEBT STOCKS BONDS = Approximation Value Approaches Average Growth Approximation  Use of P/E Method  In two stocks having the same earnings growth, the one with lower P/E is a better value. Symbol Meaning Units estimated P $ or € or £ stock price last dividend p D $ or € or £ aid k discount rate % the growth g rate of the % dividends Constant Growth Approximation  Gordon’s Growth Model from discounted dividend models  It assumes that dividends will increase at a constant growth rate (less than the discount rate) forever.  Bond Valuation- Present Value Method  PV at time T = expected cash flows in period T / (1 + I) to the T power  Value = present value @ T1 + present value @ T2 + present value @Tn Given the discount rate of 5%, maturity value of P50,000 after 5 years, the cash flow for each of the years is as follows: Year 1 = P3,000= P3,000/(1.05) to the 1st power= P2,857.14 Year 2 = P3,000=P3,000/(1.05) to the 2nd power= P2,721.09 Year 3 = P3,000=P3,000/(1.05) to the 3rd power= P2,591.51 Year 4 = P3,000= P3,000/(1.05) to the 4th THANK YOU