AFM273 Lecture Notes - Lecture 3: Expected Return, Transaction Cost, Stock Market

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM273
• Professor: Kenneth R Vetzal

Document Summary

Afm 273 chapter 3: valuation principle: use current market prices to determine the value today of the costs and benefits associated with a decision. Valuing decisions: fi(cid:374)a(cid:374)(cid:272)ial (cid:373)a(cid:374)age(cid:396)"s jo(cid:271) is to (cid:373)ake de(cid:272)isio(cid:374)s o(cid:374) (cid:271)ehalf of the fi(cid:396)(cid:373)"s i(cid:374)(cid:448)esto(cid:396)s, for good decisions benefits exceed the costs. If the jeweller did not need the gold or thinks the current price is too high he would not value the gold for less than 17,000. Or if he really needed the gold he will not value it at more than. The benefits and cost of a decision should be evaluated using these market prices and when the value of the benefit exceeds the value of the costs, the decision will increase the market value of the firm. So the posted price cannot be used to determine the exact cash value. Interest rates and the time value of money.