1. The document discusses various financial concepts including the importance of financial intelligence, passive income, income statements, balance sheets, and different approaches to valuing stocks. 2. It provides examples of using financial functions in spreadsheets to calculate things like present and future value, interest rates, and payments for investments and loans. 3. The risks and returns of different asset classes are examined, including how to calculate portfolio risk and the security market line to determine required rates of return for stocks.

5. Financial Intelligence Income Statement Balance Sheet Income Expenses (Payments) Assets (Own) Liabilities (Debt) Taxes, mortgage/rent, cards, car, food, fun, rent, clothes, child care, insurance, medical Paycheck, dividends, interest, rents, royalties, profits, advances Mortgage, car loan, credit cards, school loans Stocks, bonds, notes, real estate, business, intellectual property

6. How The Wealthy Live They take the income of the poor and middle class, and buy assets that produce more income Income Statement Balance Sheet Income Expenses Assets Liabilities

7. Rich Dad’s Cash Flow Quadrant Employee You have a job. Someone else is the boss. Security before money . Self-Employed You own a job. Loner/”boss.” Perfectionists. Small bus. Owners: Drs., restaurateurs. Independence before money. Developer You own a system that others operate. Coordinator. Delegator. Franchiser. Use other people's time and money. Investor Your money works for you. Make money with money. Other’s liabilities are your assets.

8. Basic Spreadsheet Financial Functions

14. Investment Risk and Return

18. Expected Return versus Risk 13.4 1.7 Repo Men 0.0 8.0 T-bills 18.8 13.8 Am. Foam 15.3 15.0 Market 20.0% 17.4% Alta Inds. Risk,  return Security Expected

19. Return vs. Risk (Std. Dev.): Which investment is best?

20. Portfolio Return, r p r p is a weighted average: r p = 0.5(17.4%) + 0.5(1.7%) = 9.6% . r p is between r Alta and r Repo . ^ ^ ^ ^ ^ ^ ^ ^ r p =   w i r i  n i = 1

23. Portfolio 0 15 Prob. 2 1  1  35% ;  portfolio  20%. Return

25. Calculating Beta for PQU r PQU = 0.83r M + 0.03 R 2 = 0.36 -40% -20% 0% 20% 40% -40% -20% 0% 20% 40% r M r KWE

29. Required Rates of Return r Alta = 8.0% + (7%)(1.29) = 8.0% + 9.0% = 17.0%. r M = 8.0% + (7%)(1.00) = 15.0%. r Am. F. = 8.0% + (7%)(0.68) = 12.8%. r T-bill = 8.0% + (7%)(0.00) = 8.0%. r Repo = 8.0% + (7%)(-0.86) = 2.0%.

30. Expected versus Required Returns ^ Overvalued 2.0 1.7 Repo Fairly valued 8.0 8.0 T-bills Undervalued 12.8 13.8 Am. F. Fairly valued 15.0 15.0 Market Undervalued 17.0% 17.4% Alta r r

31. Stocks and Their Valuation

33. One whose dividends are expected to grow forever at a constant rate, g. Stock Value = PV of Dividends What is a constant growth stock?

34. For a constant growth stock, If g is constant, then:

36. Assume beta = 1.2 , r RF = 7% , and RP M = 5% . What is the required rate of return on the firm’s stock? r s = r RF + (RP M )b Firm = 7% + (5%) (1.2) = 13% . Use the SML to calculate r s :

37. What’s the stock’s market value? D 0 = 2.00, r s = 13%, g = 6%. Constant growth model: = = $30.29. 0.13 - 0.06 $2.12 $2.12 0.07

40. Why are stock prices volatile? D 1 = $2, r s = 10%, and g = 5%: P 0 = D 1 / (r s -g) = $2 / (0.10 - 0.05) = $40 . What if r s or g change? g g g r s 4% 5% 6% 9% 40.00 50.00 66.67 10% 33.33 40.00 50.00 11% 28.57 33.33 40.00

41. In equilibrium, expected returns must equal required returns: r s = D 1 /P 0 + g = r s = r RF + (r M - r RF )b. ^

42. What’s the Efficient Market Hypothesis (EMH)? Securities are normally in equilibrium and are “fairly priced.” One cannot “beat the market” except through good luck or inside information.