《金融学（第二版）》讲义大纲及课后习题答案详解 第七章
CHAPTER 7
PRINCIPLES OF ASSET VALUATION
Objectives
? Understand why asset valuation is important in finance. ? Explain the Law of One Price as the principle underlying all asset-valuation procedures. ? Explain the meaning and role of valuation models.
? Explain how information gets reflected in security prices. Outline
7.1 The Relation Between an Asset’s Value and Its Price 7.2 Value Maximization and Financial Decisions 7.3 The Law of One Price and Arbitrage
7.4 Arbitrage and the Prices of Financial Assets 7.5 Exchange Rates and Triangular Arbitrage 7.6 Interest Rates and the Law of One Price 7.7 Valuation Using Comparables 7.8 Valuation Models 7.9 Accounting Measures of Value
7.10 How Information Gets Reflected in Security Prices 7.11 The Efficient Markets Hypothesis Summary
? In finance the measure of an asset’s value is the price it would fetch if it were sold in a competitive market. The
ability to accurately value assets is at the heart of the discipline of finance because many personal and corporate financial decisions can be made by selecting the alternative that maximizes value.
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? The Law of One Price states that in a competitive market, if two assets are equivalent they will tend to have the
same price. The law is enforced by a process called arbitrage, the purchase and immediate sale of equivalent assets in order to earn a sure profit from a difference in their prices.
? Even if arbitrage cannot be carried out in practice to enforce the Law of One Price, unknown asset values can
still be inferred from the prices of comparable assets whose prices are known.
? The quantitative method used to infer an asset’s value from information about the prices of comparable assets is
called a valuation model. The best valuation model to employ varies with the information available and the intended use of the estimated value. ? The book value of an asset or a liability as reported in a firm’s financial statements often differs from its current market value.
? In making most financial decisions, it is a good idea to start by assuming that for assets that are bought and sold
in competitive markets, price is a pretty accurate reflection of fundamental value. This assumption is generally warranted precisely because there are many well-informed professionals looking for mispriced assets who profit by eliminating discrepancies between the market prices and the fundamental values of assets. The proposition that an asset’s current price fully reflects all publicly-available information about future economic fundamentals affecting the asset’s value is known as the Efficient Markets Hypothesis.
? The prices of traded assets reflect information about the fundamental economic determinants of their value.
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Analysts are constantly searching for assets whose prices are different from their fundamental value in order to buy/sell these “bargains.” In deciding the best strategy for the purchase/sale of a “bargain,” the analyst has to evaluate the accuracy of her information. The market price of an asset reflects the weighted average of all analysts opinions with heavier weights for analysts who control large amounts of money and for those analysts who have better than average information. Instructor’s Manual Chapter 7 Page 106
Solutions to Problems at End of Chapter
Law of One Price and Arbitrage
1. IBX stock is trading for $35 on the NYSE and $33 on the Tokyo Stock Exchange. Assume that the costs of buying and selling the stock are negligible. a. How could you make an arbitrage profit?
b. Over time what would you expect to happen to the stock prices in New York and Tokyo?
c. Now assume that the cost of buying or selling shares of IBX is 1% per transaction. How does this affect your answer? SOLUTION:
a. Buy IBX stock in Tokyo and simultaneously sell them in NY. Your arbitrage profit is $2 per share. b. The prices would converge. c. Instead of the prices becoming exactly equal, there can remain a 2% discrepancy between them, roughly $.70 in this case.
2. Suppose you live in the state of Taxachusetts which has a 16% sales tax on liquor. A neighboring state called Taxfree has no tax on liquor.
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《金融学(第二版)》讲义大纲及课后习题答案详解 第七章
