admn 4116: portfolio management lecture 1: introduction

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© ADMN 4116, Anton Miglo

ADMN 4116: Portfolio Management

Lecture 1: Introduction

Anton Miglo

Spring 2015

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Organizational comments Blackboard: course outline, grades,

announcements, PPT and PDF slides Class notes: key for your success Assignments: no late assignments Investment game: teams Tests: TBA E-mail: no e-mail communication; only emergency

cases (medical or smth.); I don’t answer the message if it was answered in class.

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Organizational comments Grades: additional points It has two parts: first 5% are given to everybody in the

beginning of the course. This can only be reduced in the following cases:

Irrespective behaviour Disruptive behaviour Missing classes

Second 5% will be given at my discretion for class participation. Since any direct control of attendance is difficult and inefficient the following criteria are typically used:

Questions in class Questions outside of class (office hours, not e-mail).

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Organizational comments Stock Track Investment Management

exercise: interaction, strategy, creativity Group projects: cases

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Please!

1.Don’t ….

2.Turn it off!

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Topics

Introduction Types of securities Risk and Return CAPM and Portfolio Management Fixed-Income Securities Equity Analysis Options, Futures and Forwards Advanced Topics

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Lecture 1:

Money and finance Types of business organization Financial decisions and corporate

organization chart Financial information versus accounting

reports Introduction to Excel

Topics Covered

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Money and Finance

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Projects

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Securities

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Forms of Business OrganizationSole proprietorship

Partnership Corporation

Ease of formation/termination

Easy Relatively Easy Complex

Life of a firm Termination or death

Death or withdrawal of partners

In perpetuity

Owners liability Unlimited Usually unlimited Limited

Separate legal entity

No Yes

Degree of control Complete Strong Separation of control and ownership

Taxes Based on personal Income taxes Corporate Income Tax & tax on dividends

Transfer of ownership

Limited Requires agreement of the partners

Unlimited

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Organization Chart

Board of Directors

CFO GM Production

Treasurer:raising capital

banking relationship

CEO

GM Marketing

Controller:Prepares financial statements

and budgets,

Internal accounting, taxes

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The Balance Sheet (Accounting View)

=

Cash 42

Receivable 86

Inventory 14

Short-term

Investments 15

Fixed Assets 902

Intangible Assets 85

Total Assets 1,144

Bank loan 40Ac. Payable 120Bonds 60Long Term Bank Debt 464Capital 110 Additional capital 40Retained earnings 310

Liab&Shareholders’ Equity 1,144

ASSETS LIAB&EQUITY

Book Values!!!!

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The Financial View of the Firm

=

Assets in place 1,144

Growth Assets 140

Total Assets 1,284

Debt 684

Equity 600

Liab&Shareholders’ Equity 1,284

ASSETS LIAB&EQUITY

Market Values!!!!

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Income Statement Sales 1,301.00

Cost of Googs sold 1,031.00

EBITDA 270.00

Depreciation & Amortization 140.00

EBIT 130.00

Net interest expense 10

Income Before Taxes 120.00

Income Taxes 29.00

Net Income After Taxes 91.00

Cash Dividends 22.00

Retained earnings 69.00

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Excel!

EVERYONE uses it! The biggest technical skill needed in

business

Use Excel to do finance and you’ll have a double advantage: Both finance and Excel

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Introduction to Excel

Basic basics about Excel! Can probably be skipped! Most students

know this materials

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Getting started

You’ve managed to open ExcelExcel button Office buttonon desktop

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Excel 2003, Excel 2007, Excel 2010

All versions basically the same Differ in minor stuff (graphics, toolbars) All spreadsheets for Principles of Finance

with Excel work in all versions of Excel (though see next slide)

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The small print

PFE files are saved in the Excel 2007/2010 format

To open in Excel 2003, download the compatibility pack from Microsoft:

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Some rules for financial modeling

These rules will help you build better spreadsheets

Readibility, Logic, Simplicity—this is what you should strive for

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Try to put important variables in one place

12345

6789

1011121314151617181920

A B C D E F G H I

Interest rate 8%Annual deposit 12,000.00Annual cost of college 35,000

BirthdayIn bank on birthday,

before deposit/withdrawal

Deposit or withdrawal at

beginning of year

End of year before

interest

End of year with interest

10 0.00 12,000.00 12,000.00 12,960.0011 12,960.00 12,000.00 24,960.00 26,956.8012 26,956.80 12,000.00 38,956.80 42,073.3413 42,073.34 12,000.00 54,073.34 58,399.2114 58,399.21 12,000.00 70,399.21 76,031.1515 76,031.15 12,000.00 88,031.15 95,073.6416 95,073.64 12,000.00 107,073.64 115,639.5317 115,639.53 12,000.00 127,639.53 137,850.6918 137,850.69 -35,000.00 102,850.69 111,078.7519 111,078.75 -35,000.00 76,078.75 82,165.0520 82,165.05 -35,000.00 47,165.05 50,938.2521 50,938.25 -35,000.00 15,938.25

NPV of all payments 6,835.64 <-- =C7+NPV(B2,C8:C18)

SAVING FOR COLLEGECritical parameters (sometimes called "value drivers") are in the upper left-hand corner. The actual of saving for a college education is discussed in Chapter 2.

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Don’t hard-wire numbers

Use formulas instead of numbers

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Avoid using blank columns to accommodate cell “spillovers”

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Do not forget to name your spreadsheets

UGLY!! You can name sheets by clicking on the sheet tab.

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Adding “Getformula” to your spreadsheet

Some of my spreadsheets embed a small program called Getformula that allows you to see what you’ve written in a cell

When you open such a file, Excel will ask you if you want to open Getformula:

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You may have to tinker with your spreadsheet Security settings!

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You’ve got a blank spreadsheet

Save it! (all the time!)Which format?? Excel Workbook: OK for

most uses Excel Macro-Enable

Workbook: If you want to embed Getformula macro into spreadsheet

Excel 97-2003 Workbook: Lowest common denominator

Where should you save it? My documents Special folder?

Anton/Junk is a folder I’ve created

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Formatting the numbers

Mark numbers to be formatted Press right mouse button and choose Format Cells

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Relative versus absolute copying

Relative copying Absolute copying

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2345678

A B C D

Number of units

Price per unit Sales

3 22.32 66.96 <-- =B3*A315 18.99 284.85 <-- =B4*A422 31.22 686.84 <-- =B5*A518 17.50 315.00 <-- =B6*A6

1,353.65 <-- =SUM(C3:C6)

RELATIVE COPYING123

456789

A B C

Price per unit 15.25

Number of units Sales

12 183.00 <-- =A5*$B$222 335.50 <-- =A6*$B$2

152 2,318.00 <-- =A7*$B$2

2,836.50 <-- =SUM(B5:B7)

ABSOLUTE COPYING

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First spreadsheet

How does an investment of $1000 grow over time with 15% annual interest?

Note formula in cell and in Formula Bar

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Copying the formula by dragging

123456789

10111213

A B C

Year Bank balance0 10001 11502 1322.53 1520.8754 1749.006255 2011.3571886 2313.0607667 2660.019888 3059.0228639 3517.876292

10 4045.557736

COMPOUND INTEREST

The result

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Excel hint

Instead of dragging cell B4, there’s an even simpler way to copy.

Put your cursor on the handle and double-click with the left mouse button

The formula will be copied through the last row of the adjacent filled column.

In this case: from cell B5 through B13.

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Formatting: Look at the toolbar

You can change the fontsYou can change the cell alignmentYou can merge cells, wrap textYou can do number formats

PLAY AROUND WITH THIS! IT’S EASY!

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Shortcut

There’s a shortcut to this format (2 decimals, comma):

Ctrl+Shift+!

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Use F4 to change from Relative to Absolute references

At this point, you’re still in the cell (haven’t hit Enter). By hitting F4, you can change the B2 to various kinds of absolute references:

$B$2: Absolute when copied$B2: Column absolute, row relativeB$2: Row absolute, column relativeB2: Back to all relative

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Digression: Shortcuts in Excel

Many! F1: Help F2: Edit cell F4: Repeat last

action F2, then F4:

change from relative to absolute copying

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[End]+[Arrow] shortcut

Problem: You have a lot of data and you want to mark it all Put cursor on first cell Hold down Shift key Push End key and Down-arrow

Problem: You have a lot of data and you want to get to the other end Put cursor on first cell Push End key and Down-arrow

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Last slide:

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Last slide:

admn 4116: portfolio management lecture 1: introduction

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