Risk
Sharpe Ratio
It is generally believed that an investment portfolio is better constructed the higher its Sharpe ratio (Sharpe Ratio – William F. Sharpe). The Sharpe ratio describes the relationship […]
Archive
Category: Principles of Corporate Finance – by F. Allen, R. A. Brealey, & S. Myers
Derivatives
Black-Scholes-Merton Model
The Black-Scholes-Merton (BSM) formula holds the same weight in financial science as E = mc² does in physics. The formula revolutionized the development of the options market. Thanks […]
Market Efficiency
Dividends Irrelevance
Does it matter if you purchase an Income stock or a Growth stock? Does a company’s decision to distribute dividends or reinvest earnings impact the stock price? The […]
Risk
Pitfalls of IRR
Do You Use IRR to Evaluate Projects? Consider This: Many financial professionals use the Internal Rate of Return (IRR) for project evaluation, but it can be highly misleading. […]
Risk
A+B = (A+B)
Should an Organization Diversify into Different Business Areas? This question is crucial because one of the fundamental principles in financial theory is the principle of value additivity, which […]
Risk
Diversification
How Does Diversification Reduce Risk? In finance, risk refers to the range of deviation from the forecasted or expected returns. This range is often based on historical statistics […]
Risk
Market Risk
In the previous entry, I discussed how diversification can reduce an organization’s specific risks and mentioned that diversification cannot influence overall systemic, or market, risks. Imagine we have […]