Valuation of Stocks and Bonds, James Tompkins

This is the fourth lecture in the "Corporate Finance" series in which I talk about both the concept and the valuation of financial securities. For example, what do I mean by Apple "stock" and why is it valued at $X per share. Many textbooks will emphasize stocks and bonds, but in this discussion I highlight the fact that there is in fact a whole spectrum of numerous different types of financial securities for the investor that range from relatively low risk (eg IBM bonds) to higher risk (eg IBM stock). However, no matter what type of financial security you are talking about, what it is worth today is in theory related to future expected cash flows and the risk inherent in those cash flows. Many textbooks will have some fancy names applied to these "valuation" formulas; however, they are nothing more than fundamental time value of money formulas with different assumptions about expected returns and risk. The sad (perhaps) truth is that in the end, if you buy a stock and expect to get "filthy" rich, it will not be because you understand this lecture or time value of money formulas, but rather, because you believe you can do a better job than the market of estimating the future expected cash flows/returns and/or risk inherent in the cash flows/returns of the stock. As always, my goal is not memorization, but an understanding of these principles.

[@ryanmacdougall3740]

Hi James, I really appreciate these vids, im doing my MBA and this has really helped supplement my learning from classes as well.

[@understandingfinance]

Great! Good luck with the MBA! :)

[@kojoatta9456]

Sir bless your heart.I now understand this very well

[@erchongyee]

Well organized and presented coursework. My lecturers taught me all the basic, I learned to understand it thoroughly through this video.

[@Madeline1999]

I had to drop finance in the beginning of my undergrad. Through your videos I currently am sitting at an A+ in the class I have been most scared of my whole degree! Thank you for such an incredible explanation of these concepts and giving me an interest to learn more!

[@mohamedmed219]

Thank you for a brilliant and outstanding explanation.

[@understandingfinance]

+Mohamed Med You are very welcome.

[@cn5570]

Thank you, sir!

[@mubasharahmad1408]

Thank you very much sir. The lectures are very well organized and they have helped me a lot being an engineer these things were new to me but now I am confident about what I have learned.

[@understandingfinance]

That's great! Thank you for your kind words.

[@vamshi8597]

excellent lecture sir, thank u so much

[@youmkyunglee780]

thanks James. you made my life easier. :)

[@understandingfinance]

+Youmkyung Lee That's great! :)

[@mphosetoi4193]

thanks Tompkins

[@SEEpath-kt7jm]

Thank you for lectures they are very helpful, and the British accent makes it even more cool for some reason.
Question:
Near 28:26, you mentioned the need to convert the 8% into an effective 6 month rate, in order to do that don't we first need to convert the 8% from the nominal value into the effective annual rate,(EAR or EFF) which will give us a value of 8.16% EFF on annual basis, which will then translate into the 0.0408 on a semiannual basis.

[@understandingfinance]

+Peace&LOVE 2016 and after Thanks....anyway....what is the only first step you can do with a nominal rate by definition? To get a thorough understanding of this I'd recommend my video...Time Value of Money Single Cash Flows.....I'm not trying to push this...just that you will get a much more thorough answer / understanding there than my replying yes or no here.....:)

[@Clifffffffffford]

thanks!

[@adrianmarino8115]

youre my idol

[@nataliecole7912]

Thank you James 🙆🙆

[@understandingfinance]

You are welcome. :)

[@klarc]

putting my school to shame... thanks !

[@understandingfinance]

Thanks. :)

[@cc2752]

Sir please answer my question please . Are you rich ??? A millionaire ??? Yes or not ??? Because I want to know if financial management deserve so much reading :) please answer me !!!!