Prof Lowell

eToys - contd. This day in Fin History - May 20 - Just 19 months later, on Feb 26, 2001, the company announces that it will file bankruptcy. Benjamin Graham (with Jason Zweig), The Intelligent Investor (HarperBusiness, New York, 2003), pp. 443-444; jasonzweig.com/

This day in Financial History - May 20,1999: eToys Inc., a startup Internet retailer, goes public on NASDAQ. Initially expected to be priced at $10-$12 per share, the first trade is at an astonishing $83 9/16. The shares close the day at $76 9/16, a one-day return of 282.8%.

If the rate of return is just 4%, this changes everything since she only has $132K saved. This means that she has to save more to get to $1.4M

#fin2209. Let’s delve a little deeper into the TVM problem. Think of ways she could make more $$ and have a bigger retirement savings at 65. Is it realistic that one can get a 12% return in today’s investment climate or is 5-7% more realistic?

TVM Problem solved. #Fin2209.

A 20-year-old student wants to save $3 a day for her retirement. Every day she keeps $3 aside. At the end of the year, she invests the accumulated savings ($1,095) in a brokerage account with an expected annual return of 12%. How much money will she have when she is 65 years old?

#Fin2209. For this week's (05/11/2020) tweets around TVM, please write about your understanding of TVM. I'll be tweeting some examples - use those examples to further your understanding and then tweet about it.

#Fin2209. Using Excel for all Time Value of money (TVM) calculations. See example below:

#Fin2209. Profitability ratios are like Key Performance Indicators (KPIs) that a company can use at any point in time to evaluate performance. If a KPI is not in sync with expected results, then there are actions that can be taken to improve it.

#Fin 2209. A liquidity ratio is about how liquid (or easily convertible into cash) a company's assets are. Cash is the most liquid asset. Accounts receivables are the next - this is money that is owed to you from customers. Inventory is the least liquid asset.

#Fin2209. Future Value (FV) concept - This is about what one would want to see in the future. e.g. someone wants to have $25000 in 4 years to save for a new car or someone wants to have $2M by the time they turn 60 for retirement.

#Fin2209. Time Vale of Money (TVM) concept: Present Value(PV) - The PV shows the value of cash flows in terms of today’s purchasing power. Finding the PV of a cash flow or series of cash flows is called discounting. This is the underlying principle when valuing a company.

Risk premium is basically the difference between the return on a risky investment and that on a risk-free investment. As an investor you have a choice. Invest in a risk-free investment and get your risk to zero. Or invest in more risky options but take the chance of losing more,

#2209. Re: Risk and Return. If you bear risk, there is a reward associated with it called risk premium. Greater the risk, higher is the risk premium. There are two types of risk - systematic risk that affects everything and unsystematic risk that affects a few things.

#Fin2209. Heck of a movement with Wayfair's stock price. And yet, most analysts are adamant that the stock price, before the jump, was overvalued.

#Fin2209. A loan that is to be repaid in equal amounts – Monthly – Quarterly or – Annually Is called an Amortized loan Basic principle is that equal payments are determined to service the loan. Those payments contain a principal and interest component.

#Fin2209. Realistically, to get to an annual savings goal, the best thing to do is just set aside a specified amount for your 401K. The amount you specify gets taken out of your paycheck and you don't have to worry about it.

If the rate of return is just 4%, then we would get a fraction of the amount as compared to the original problem. She will need to save more money to get to her savings goal.

Closing the loop on the TVM problem. #Fin2209