Questions tagged [finance]

Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments.

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60 views

Why are share repurchases particularly accretive?

From the "Manual of Ideas"... VALUE CREATION VIA BUYBACKS Share repurchases tend to be particularly accretive in the case of companies generating cash from operations while trading below tangible ...
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2answers
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Why are prices of stocks not very very high with very very low r?

The theory of present value states that the price of a stock is the discounted value of the infinite stream of future income of the company. Several countries have had very very low interest rates, ...
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Buy a company with credit or bonds. Does this happen?

I have a question. A company is worth 1 million dollars, in terms of present value of revenues, discounted at rate R. Can I borrow 1 million dollars from a bank and buy the company? If the bank ...
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932 views

Who created the concept of “present value”?

I cannot find anything on this online. The wikipedia article is purely technical, except by a mention that such system was used in England in early 16th century. Do you know who was the first to come ...
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70 views

Difference between two ways of calculating real return

I've just learned the following way of calculating the real return rate $R$ of an investment: $$R=\frac{P(1+N)-P(1+I)}{P(1+I)}$$ Where $P$ is the initial value invested, $N$ is the nominal ...
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Approximate factor model: Weakly correlated and eigenvalue

To my best knowledge, in Ross's APT, it is assumed that the pricing model is the exact factor model. Chamberlain (1983 ECTA) expanded it into the approximate factor model. In the exact factor ...
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2answers
63 views

Variance of a rational forecast

In Chapter 24 of Richard Thaler's book Misbehaving, he writes: An important property of rational forecasts---as a stock price is supposed to be---is that the predictions cannot vary more than the ...
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3answers
136 views

How do economic and financial policies in government deal with cryptocurrencies?

Given the decentralized nature of cryptocurrencies like bitcoin and ethereum, how can centralized organisations like banks and the government create policies around it without changing the way ...
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97 views

Will money still have any value in the fully automated world?

Moved from the personal finance & money SE: The following question is somewhat of an existential nature and may not necessarily be related to finance or economics in the strict sense. Reading ...
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Any major theory/model that considers return due to idiosyncratic risk?

Are there any classical, major theories/models that consider positive return due to idiosyncratic risk? For example, CAPM only considers return due to systemic risk but not idiosyncratic risk. If ...
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1answer
31 views

Insurance Company's Role after Natural Distaster

Is anything special expected of insurance companies after a natural disaster? Many different sectors have to cooperate to put affected urban communities back together. Recently there are reports of ...
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164 views

CAPM goodness of fit

I want to test the CAPM. I have collected monthly data from 1-9-2012 to 1-9-2017. I have data from the return of Standard&Poor's 500 and data from various US companies. The beta's seem right, but ...
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2answers
189 views

How did the derivatives market 'collapse' in 2008?

I just watched the film 'The big short', and have been trying to think in context with the financial markets in 2008. I think the film does a great job of explaining how sub-prime mortgages came to be ...
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1answer
476 views

Difference between Negotiable Instrument and Financial Asset

So here are the two pages I was reading to try and understand : Negotiable Instrument and Financial Asset Confusion started as both pages use Certificates of Deposits(CDs) as an example.So a CD is ...
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230 views

Monthly average rate of discount, 3 month Treasury bills, Sterling Vs 1 Month

I have been advised by one of my professors to use UK treasury bills for a risk free rate when calculating expected returns for stocks. I wanted to know whether I should be using 1 month T-Bills or 3 ...
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1answer
177 views

Why is JPY considered a “safe currency”?

When the economic prospect around the world feels getting worse and/or getting higher uncertainty, usually the value of JPY is getting higher, because investors are said to start to buy JPY to shelter ...
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1answer
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Clarifying the meaning of market capitalization

I'm new to this kind of topic and I'm trying to get a deeper understand. I read that "the shares' price times the number of shares outstanding is the value of a company (=market capitalization)". ...
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3answers
55 views

Does an instant settlement system (such as blockchains) eliminate the possibility for short selling?

My understanding is that a short sell is possible because you can sell positions you don't have and then buy at a later point to cover your position (with the price hopefully being more favorable) to ...
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1answer
32 views

Why does loan waiving lead to a decrease of Non performing assets?

Context: Loan waving to small and marginal farmers in India. In wake of fulfilling poll promises and increasing farmer protests and suicides in India, many state (federal) governments have ...
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2answers
1k views

Compound interest problem using PMT in Excel

So I found this example in the net Compound interest formula (including principal): A = P(1+r/n)(nt) If an amount of $5,000 is deposited into a savings account at an annual interest rate ...
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1answer
208 views

International Capital Asset Pricing Model (CAPM)

I wanted to value a High-tech start-up of which I have the cash flows of the coming 6 years. I decided to use the Discounted Cash Flow Method. To do so, I calculated the Discount rate. For a High-...
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Basis about money

How RBI prints money on what bases? other than changing old money to new money. If price increases and tax increases on what bases they will print more money. Please explain in simple words
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2answers
400 views

Prove that variance of a portfolio cannot exceed variance of individual assets

When reading on Markowitz's portfolio theory, I stumbled across the fact that in a market with two risky assets, if no short selling is not allowed, the variance of a portfolio consisting of the two ...
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1answer
179 views

Deriving and using the pricing equation

I'm a mathematician who's trying to learn some economics from Cochrane's Asset Pricing book. I don't have any background in economics. In chapter 1, he derives the basic pricing equation $$ p_t = \...
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3answers
286 views

Time Value of Money Question

For the following Question The Answer is First: Scenario 1 : I wonder how the customer pay as whole 12000 dollar after 12 years for a 8525 dollar product if the interest rate = 0% I think that , ...
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208 views

What is the equation $\mathbb{E}[mR]=1$?

I have just joined this Stack Exchange site and I was reading the following question: What are the foundational equations of Economics?. I have seen a couple of times the following equation in that ...
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0answers
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Dataset - Fama French Replication

I am trying to replicate the Fama-French three-factor model. I am having issues in the dataset. 1) Using the CRSP/COMPUSTAT merged dataset for firm fundamentals from WRDS, and then dropping data on ...
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1answer
4k views

Interest Rate vs. Borrowing Rate - Difference

I have never studied economics so the question might be very basic one and would need understandable answer: I would like to know the difference between Interest Rate term and Borrowing Rate term? As ...
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1answer
90 views

Testing if one regressor is a proxy for another

I'm reading Guiso, Sapienza and Zingales: "Trusting the Stock Market" The Journal of Finance, Vol. 63, No. 6, 2008 and have a question about how they test whether trust is a proxy for risk aversion. ...
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1answer
1k views

What is the difference between quoted price and theoretical value of a bond?

When we refer to "quoted price" of bond, or "clean price", it is equivalent to refer to his "present value" or "theoretical value", which corresponds to the price that I invest in the bond? For ...
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2answers
74 views

Market order's variables

I am not an economist, so my question could be stupid for you. However, I need to understand how market order works and which variables plays in a trade. For example: let us suppose I am a trader ...
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207 views

Why should UIP hold?

I am aware of the details of Uncovered Interest Parity, namely that the expected depreciation of a currency vs another one should equal the interest rate differential. I am also aware that empirically ...
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1answer
18 views

Forecasting future currency exposures

I have a data set (about 60 observations for each variable) for monthly operating income for a Japanese company denoted in EUR, USD, and JPY, and their respective currencies. I believe there is linear ...
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1answer
33 views

Is lowered probability of spending equals savings? [closed]

This a really basic one and logic says: Yes given enough iterations. But I am looking for validation Situation: There is a 7% probability of expenses of 1000 occurring. I have a tool that then ...
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0answers
63 views

Confusion about Balance sheet equation and sum of the cashflows

I was solving a business case I had at school where i just needed to compute the cashflows (CF). Once I have done so I wanted to check that my calculations are all good by verifying that the following ...
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1answer
2k views

Difference between double auction and continuous double auction?

What is the difference between double auction and continuous double auction? Sometimes I feel that they were types of two-sided auction but sometimes I feel as if they were two separate concepts.
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257 views

Do stock markets price in existential risk (i.e. global nuclear war)?

Question Moved from Money StackExchange: https://money.stackexchange.com/questions/74002/do-stock-markets-price-in-existential-risk-i-e-global-nuclear-war Q: Do stock markets price in existential ...
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34 views

One trivia on Miller Modigliani Theorem regarding the No arbitrage Argument

Suppose there are a levered firm with firm value $V_L=D_L+E_L$ and an unlevered firm $V_U = E_U$ both yielding an income of $X$ at time 1. One direction of the no arbitrage argument goes like this: ...
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80 views

Using the Dividend Discount Model when no current dividend exists?

Say a company is doing an IPO and we expect them to start paying dividends in 5 years? I understand how we could use the Dividend Discount Model to predict their stock price 4 years from the IPO. But ...
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1answer
71 views

Given fractional banking and the multiplier effect, for every dollar in circulation, how many dollars in spendable money exist?

The fractional banking system, in a nutshell, allows banks to invest the money deposited in them, and then for whoever ends up with that invested money to deposit the money back into the bank, which ...
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1answer
32 views

Put option valuation [closed]

Does a European put have different fair values at time 0 in long and short position? If so, could you explain to my why? Instinctively, I think the answer is that there is no difference, since ...
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1answer
80 views

Is the shareholder-creditor conflict the same as debt-equity conflict?

I am having some problems understanding the difference between shareholder-creditor conflict and debt-equity conflict. I understand what the shareholder-creditor conflict is about, but when I try to ...
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1answer
144 views

In the event of a company's bankruptcy, how does a SPV continue operations if it can no longer collect payments on collateral

Let's say a company sells car loans (or mortgages or credit cards, I don't think it really matters). The company sells the loans to an SPV, who then issues securities backed by the cash flows the SPV ...
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75 views

How to find the discount rate at which two deals are equally attractive? [closed]

Dealer A will sell me a car for \$20,000 with \$2,000 down and the remaining $18,000 paid back over 36 months at a rate of 8% compounded monthly. Dealer B will sell me the same car for \$19,500 with \...
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1answer
215 views

How to find the present value of a perpetuity with a non-constant growth rate?

I've got a perpetuity problem where an organization pays out 50 equal valued grants each year in perpetuity, adding an additional 5 grants each year (i.e. 55 in year 2, 60 in year 3, etc.). We've ...
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0answers
134 views

How to solve a variation of Merton's optimal portfolio problem?

Does anyone know how to solve the following problem? I have tried to solve this but I'm lost since I have never dealt with a Stochastic Dynamic Programming problem with many variables. $max_{c_{t},\...
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0answers
54 views

What happened to leverage buyouts?

Back in the 1980s leveraged buyouts were a common event. Financiers like T. Boone Pickens would borrow money, buy a controlling interest in a publicly traded stock and then re-engineer the company, ...
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1answer
37 views

Renminbi demand and CNY rates

I read something similar to here, http://www.businessinsider.com/onshore-and-offshore-renminbi-2014-2?IR=T, paragraph 6, that demand for renminbi drives down cny bond market? I can understand how ...
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1answer
30 views

Correct way to measure Defence budget of a country like India [closed]

I read that defence budget of the country is 2-3% of GDP, but isnt GDP irrelevant when we are talking about expenditure? Shouldn't it be in a ratio of military import/total import?
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1answer
85 views

Do bankers have important and difficult jobs? [closed]

Does the finance system matter? Do bankers have important and difficult jobs that protect against destroying the economy from some paperwork reason?

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