ETF Mechanics

ETF: Exchange-traded Fund

Mutual fund shares must be purchased or sold at the end of t

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INTRODUCTION TO ARBITRAGE-FREE VALUATION

Arbitrage-free valuation refers to an approach to security

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Forward pricing model

$$ P(T1+T2)=P(T1)+F(T1,T2) $$

$$ P(T)=\frac{1}{(1+r)^T} $$

$$ F(T1,T2)=\frac

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Economic Value Added (EVA)

$$ EVA=NOPAT-(C\%*TC) $$

$$ EVA=NOPAT - WACC * \text{total asset} $$

C%

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Introduction and Income Statement Modeling: Revenue

Top-down approaches to modeling revenue

• growth

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Normalize EPS

$$ EPS=\text{average ROE}* \text{current book value per share} $$

Enterprise value (E

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Introduction

Changes in financial leverage affects FCEF but not FCFF.

Abnormal return or alpha： intr

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DCF Model

$$ V=\sum \limits_{t=0}^{n}\frac{CF_t}{(1+r)^t} $$

$$ V_0=E_1/r+PVGO $$

$$ V_0/E_1=P_0/E_1

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Motives for merger

• Synergy,
• Growth,
• Increasing Market Power,
• Acquiring Unique Capabilities and R

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Categories

1) replacement, 2) expansion, 3) new products and services, 4) regulatory, safety and pos

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