Principles of Market Valuation参考.ppt

Chapter 7:  Principles of Market Valuation Introduction Recall that the three pillars of finance are time value of money asset valuation risk management Many financial decisions are, in essence, the determination of an asset’s value Introduction (Continued) The key to asset valuation is comparison of the asset to be valued with a set of assets with similar characteristics and known values By the law of one price, the price of all equivalent assets must be the same Chapter 7 Contents 7.1 The relationship between an asset’s value its price 7.2 Value maximization financial decisions 7.3 The law of one price arbitrage 7.4 Arbitrage the price of financial assets 7.5 Interest rates the law of one price 7.6 Exchange rates triangular arbitrage 7.7 Valuation using comparables 7.8 Valuation Models 7.9 Accounting measures of value 7.10 How information is reflected in security prices 7.11 The efficient markets hypothesis 7.1 Relationship between Asset’s Value and Its Price Definition: An asset’s fundamental value is the price well-informed investors must pay to purchase it in a free and competitive market Relationship between Asset Value and Price There can exist temporary differences between the market price of an asset and its fundamental value Security analysts make their living by discovering these aberrations Many well-informed professionals are looking for these aberrations. A reasonable initial assumption is that aberrations are small 7.2 Value Maximization and Financial Decisions Financial decisions can be made rationally purely on the basis of value maximization, and without regard to risk preferences and expectations Markets for financial assets provide the information needed to choose between some alternatives The essence of asset valuation Is to estimate how much an asset is worth using information about one or more comparable assets whose current market prices we know. The method used to accomplish this estimation depends on the richness of the inf