Can you help me with question 1

Define the terms

Question 1

Compounding vs discounting concept

Annuity vs Annuity Due: Which has higher PV and FV? Annuity due always has higher PV and FV.

When discount rate increases (deceases), PV decreases (increases). When receiving money early, the higher the PV. There is an inverse relation between the discount rate and PV.

When compounding occurs more frequently, effective interest rate >nominal interest rate

When solving problems, pay attention to the timing (beginning or ending) of cash flow, inflow or outflow, annuity vs single cash flow, periodic payment vs periodic interest rate, etc.

Question 2

Standard deviation (variance) vs. coefficient of variation

Total risk=systematic risk + unsystematic risk

Various names and examples for systematic risk and unsystematic risk

When increasing the number of stocks in a portfolio, total risk declines because unsystematic risk is eliminated through diversification with systematic risk remaining.

Correlation efficient plays an important role in portfolio theory, which is between -1 and +1.

When correlation is imperfect between assets, we can reduce partial risk; if it is +1, we cannot reduce risk; and if it is -1, we can eliminate all risk. The lower the correlation coefficient, the more risk reduction we can achieve.

CAPM vs SML, as both show the relationship between expected return and systematic risk.

What does beta mean? Market risk premium means?

Which risk matters in pricing?

What risk do diversified investors and non-diversified investors face, respectively?

What risk matters when holding an individual asset? How about holding a well-diversified portfolio?

Portfolio return/beta is the weighted average of individual stocks return/beta

Question 3

Secondary stock markets such as NYSE (an auction market) & NASDAQ (a dealer market).

Who is the market maker on the NYSE that auctions the stocks designated to him/her?

The value of a common stock is the present value of future dividends discounted at the shareholders required return or the cost of equity derived from the CAPM. There is a negative relationship between stock price and the discount rate.

Pay attention to applying the constant-growth dividend model. D0 vs D1. Whats the intrinsic value today vs a few years from today? Compare intrinsic value to market price to determine whether the stock is over- or under-valued.