ank329's Xanga

Wednesday, January 23, 2008

Wed, 23 Jan 2008 13:11:31 GMT

Ode to Young William

Rapping by L-Dawg

~Talking in a California Accent~
Oh my god
[Other person’s name], look at her comp (scoff)
It is so big (scoff)
Looks like one of those crazy Enron executives,
But y’know, who understands those executives? (scoff)
They only talk to her because she has a ton of options (’kay)
I mean her comp, it’s just so big (scoff)
I can’t believe it’s so in the money, it’s like out there
I mean - it’s so gross
Look, she’s just so loaded

~rap by L-Dawg~
I like big compsÂ and I can not lie
You other consultants can’t deny
And when a CEO walks in with an itty bitty base
And a round bonus in your face
You get sprung
Wanna pull up tough
Cuz you noticed that option was stuffed

Deep in the money she’s sporting
I’m hooked and I can’t stop granting
Oh, baby I wanna exercise my options with ya
And take your RSU’s

My coworkers tried to warn me
But with that base you got
Makes me so greedy

Ooh, rumple smooth volatility
You say you wanna get in my ISOs,
Well use me use me cuz you ain’t that average comparator groupee,
I’ve seen them grantin’,
To hell with shareholder
They’ve got no clue,
I’m tired of consultants
Saying flat comps are the thing
Take the average executive and ask him that
You gotta increase much back

So Fellas (yeah) Fellas(yeah)
Has your executive got the comp (hell yeah)
Tell ”˜em shake it, shake it, shake it, shake it, shake it shake that healthy comp
Baby got back

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Saturday, January 19, 2008

Sat, 19 Jan 2008 20:38:48 GMT

Walmart.com does good!

I’m sure all of you remember the whole Super Smash Bro pre-order fiasco with Walmart. I just got an email from Walmart.com giving me a $10 gift card to make up for the whole thing. I had ordered GTA IV, not Super Smash Bro, so I might have gotten the gift card as a result of that

Here’s the text of the email

To: {redacted}
From: Walmart.com Gift Card
Sent: 19, Jan, 12:20 PM, 2008
Subject: Walmart.com bought a Walmart.com Online Gift Card for you!
Card Amount: $10
Card Number: {redacted}
PIN: {redacted}

Hello {redacted},

This Walmart.com Online Gift Card for $10 has been sent to you by Walmart.com for buying merchandise at Walmart.com. If you’re a Sam’s Club member, you can also use this Gift Card at samsclub.com.

The details of this Online Gift Card are below. Please save this email. It is the only record of your Gift Card information that you will receive. For your convenience, click “Save Card to Account” below to link this Gift Card to your account as soon as possible. The Gift Card information will be stored in your account for future online purchases.

Message from Walmart.com:
Thank you for your understanding regarding issues with your recent video game ordering experience. We value your business.
save card to account
How to use your Online Gift Card:
1. Shop for merchandise at http://www.walmart.com. The Web site offers fashionable furnishings, the latest in electronics and apparel, personalized gifts, top toys and sporting goods, thousands of books and CDs, and much more for you to enjoy.
2. On the Payment Method page during checkout, click “Pay With a Gift Card.”
3. Enter your card number and PIN, stated above.
Use of this card constitutes acceptance of the Gift Card Terms and Conditions posted on Walmart.com. The card can be used for online purchases at Walmart.com. It can also be used by members of Sam’s Club for online purchases at Samsclub.com. This card cannot be redeemed for cash and cannot be used at Wal-Mart stores or at Sam’s Club stores.
Order Date: January 18 2008
Order Number: {redacted}
Help
If you have questions about or problems with using your Gift Card, please visit Using a Gift Card in Help.
Sincerely,

Customer Service at Walmart.com
http://www.walmart.com

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Friday, January 18, 2008

Fri, 18 Jan 2008 14:17:46 GMT

The Risk-Free Rate

The risk free rate is one of the most basic concepts that you need to know. This rate is the theoretical return of an investment with no risk. In theory, it is easy to define, but in practice it becomes slightly harder. Since all companies have default risk associated with them, we can’t use any of their bonds as a risk-free measure. This leaves with government debt. Typical practice is to use the yield from a ten-year US treasury note as the risk-free rate.

This works fine and dandy as long as you are valuing something in the United States. But with emerging markets such a hot topic now, what rate should you use in those cases? The best way to approach this scenario, is to apply a premium to a risk free rate. This premium is the default risk of the country as a whole. For example, you take the 10 year treasury yield and add to it the default risk of the country, and that would be the risk free rate for that country.

H ow do you figure out what premium to add? That is also straightforward to figure out. Almost every country is going to have some sort of bonds/debt outstanding. The yield on a ten year bond (same maturity as the risk free rate), or what ever the closest bond is to ten year, is your premium. This yield signifies how risky the country’s government is; this yield is the rate you need to achieve to invest in that country. By adding it to the US risk free rate you get the risk free rate for the country.

The risk free rate is very important. It is the lowest rate you should demand for any investment you make. Since all investments carry some risk with them, your investment return has to be greater than the risk free rate. The amount it has to be greater than is the topic for the next post.

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Friday, January 18, 2008

Fri, 18 Jan 2008 02:30:31 GMT

Uranium Ore

If you ever wanted to buy some Uranium Ore, Amazon can hook you up. They sell small samples of it for scientific testing. You can use it to test Geiger Counters. Enjoy!

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Thursday, January 17, 2008

Thu, 17 Jan 2008 18:04:35 GMT

M1-5 Lounge

Heads up to everyone; I went to M1-5 Lounge last Friday. While there, I used my credit card a couple of times, and apparently someone managed to copy down the numbers. When I checked my account online today, I noticed several charges that I hadn’t authorized; I called Citibank and canceled the account. Thankfully, there were only three charges, all for fairly small amounts (it looks like it wasn’t a professional job, otherwise my card would probably have been maxed out by now).

I actually called one of the merchants that charged my account, and they hung up on me. I told the CSR that I wanted to get some information on a charge made with my credit card that I didn’t authorize. She said that she could look it up in the system if I gave her a phone number. I clearly don’t know what number was given to this company when my card was used, and when I tried to explain it, she hung up on me.

Either way, my card is now canceled; I should get a new one in the mail in the next few days, along with an affidavit where I can mark off the fraudulent charges. So, hopefully it should all be over shortly.

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Wednesday, January 16, 2008

Wed, 16 Jan 2008 18:03:20 GMT

Old Boy

I finally decided to buy the movie; as before, I highly recommend it to anyone that might like Korean movies at all.

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Tuesday, January 08, 2008

Tue, 08 Jan 2008 13:37:31 GMT

Finance 101

Over the next few days and weeks I’m going to write several finance based posts. These posts will cover fundamental topics in investing; things you should know before you go and invest in a company. I’ll cover basic topics like the Risk-Free Rate to the Weight Average Cost of Capital. These posts should give you a basic understanding and foundation to build upon.

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Tuesday, January 08, 2008

Tue, 08 Jan 2008 03:52:31 GMT

Risk, Risk, Riskâ€¦ The Equity Risk Premium

The equity risk premium measures the extra return demanded by investors for choosing a risky asset over a riskless investment. First, a risk free asset is an investment that the investor knows the expected return with certainty. When the investor does not know what the expected return is, the investment is not risk free, and the investor as a result demands a higher return. The equity risk premium is a measure of this average risk in equities.

The risk premium is based on two basics ideas: risk aversion of the investor and the riskiness of the average risk investment. The risk aversion of investors is how willing the investors are to take risk. For example, when the economy is doing well, investors would be more willing to invest in risky assets. The riskiness of the average risk investment is dependent on what investors think the average riskiness is. As a result, the risk premium changes over time. Since the risk premium is different for each individual, the equity risk premium should be a weighted average of all investors based on how much they are investing into the market.

The risk premium can be measured in one of three ways: (1) major investors can be surveyed for what they think the risk premium is, (2) the risk premium can be measured based on historical data, and (3) the premium can be implied from current market data. However, though the survey method would give the most accurate number, it is not feasible to do so. As a result, we are limited to calculating the risk premium either from historical data or from current market data.

The historical risk premium is the most commonly used method in risk and return models. While the idea of using a historical risk premium is accepted, the actual method of calculating the premium is still very varied. For example, the estimated historical risk premium has ranged from 4% to 12% depending on the analyst. There are three main reasons for this huge spread: the time period used, the risk free rate used, and the type of averaging (geometric, arithmetic) used.

The time period can be very variable as investors can calculate the risk premium using data from the last ten, twenty, thirty, fifty, or more, years of data. One main reason why no “correct” time period exists for calculating the premium is due to the conflict between theory and application. As more years of data are used, the standard error of estimation becomes smaller, as seen below:

Estimation Period	Standard Error
5 Years	8.94%
10 Years	6.32%
25 Years	4.00%
50 Years	2.83%

Thus, in order to achieve an acceptable standard error, the estimation period needs to be fairly large. However, the problem with such a large estimation period is that the current market is sure to be very different from what it was fifty years ago. Furthermore, the risk aversion of investors is very likely to have changed over the years as well; as a result, historical data going back to 1926 will not be an accurate representation of current events and expectations.

The risk free rate used can change the risk premium as well depending on what was used in the calculations. If investors choose a short maturity treasury bill, the risk premium will be larger; similarly, the risk premium will be smaller if a longer maturity is used. Typically, the choice of the risk free rate will be consistent with the valuation mythology, or the ten year bond rate.

In addition, when dealing with historical premiums, the arithmetic and geometric average can affect the premium. The arithmetic average is a simple average of the annual returns whereas the geometric average measures compound change. Both methodologies can be used as strong arguments can be made for either method.

Given all the variables in calculating the historical risk premium, however, a much better way to calculate the risk premium is to use the implied equity risk premium, which assumes that the current market is correctly priced. Based on the dividend discount model, the required return on equity can be calculated, and when the risk free rate is subtracted out, the risk premium is calculated.

Value =	Expected Dividends Next Period
	(Required Return on Equity - Expected Growth Rate in Dividends)

Based on the above formula, three of the four variables are known. The value is the current value of the market (the S&P 500); the expected dividend and expected growth can both be estimated. For example, if the S&P 500 is at 900, the expected dividend yield for the next period is 3%, and the expected growth in dividends is 6%. Plugging in the numbers and solving the unknown gives you 9%. This 9% is the required return on the equity; when you subtracted out the risk free rate of about 6%, we can estimate a 3% risk premium.

This method has several advantages over using the historical risk premium. First, it is very simple to calculate - it can be calculated using information found on the front page the Wall Street Journal. Furthermore, there are fewer things that can go wrong when calculating this risk premium. The data is also very current, and does not require a large amount of historical data, data that is typically not available when looking at emerging markets.

The most accurate and realistic measure of the equity risk premium can be found by using the implied risk premium method. Using any other premium will bring a market basis into the valuation. Currently (as of February 21, 2007) the implied equity premium is 4.05%, while the most commonly accepted historical premium is 4.91%. In order to achieve a risk premium of 4.91%, the S&P 500 would need to be approximately 17% lower than its current level - such a gross deviation from the correct number will no doubt to cause serious problems in investment decision.

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Tuesday, January 08, 2008

Tue, 08 Jan 2008 02:34:44 GMT

Review: Charlie Wilson’s War

I went in expecting a mediocre movie, nothing too special. This movie delivers, it far exceeded my expectations and was a wonderful movie. The movie is about a no-name representative from Texas who is in partly in charge of the covert black-ops budget for the CIA. Charlie Wilson, through his connections with other representatives manages to increase this budget, specifically for Afghanistan from $5 million to $500 million.Â This takes place during the Cold War, so the money (along with matching funds from the Sudias) goes to fight the Soviets in Afghanistan and eventually drive them out.

The main reason this movie is so good is because it is based on true events. This actually happened during the Cold War. The acting is superb; Tom Hanks, Phillip Seymour Hoffman, and Julia Roberts all give great performances. While there is not a whole lot of action (that’s not the point of the movie), the plot line and story easily makes up for it.

If you are mildly interested in history, I definitely recommend you check this movie out.

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Tuesday, January 08, 2008

Tue, 08 Jan 2008 02:02:33 GMT

Thirteen Reasons why I am doing Relay for Life

Thirteen Reasons why I am doing Relay for LifeRelay For Life is an overnight event that brings our community together to help support the American Cancer Society and its lifesaving mission to eliminate cancer as a major health problem. The Society works hard every day to prevent cancer and save lives by supporting groundbreaking research, affecting public policies that protect us from cancer, and educating people on how to prevent or detect cancer early. The Society helps people with cancer right here in our own community. And our efforts at Relay For Life can help the American Cancer Society to keep working toward a cancer-free future.

All money raised goes straight to the American Cancer Society
The ACS needs as much money as possible
Wonderful charity to support
People with cancer
People that have passed away as a result of cancer
There is a little competition that goes on between all the groups raising money
Within my group, we have two teams so there is another layer of competition between the two teams
Relay for Life is an all night event, so it gives me an excuse to pull yet another all-nighter
All donations are tax-deductible
Great cause
The Relay is a national event, and if you want to participate you can set one up in your town if you don’t have it
This is my last Relay at NYU since I am graduation in May
I want to help people. I feel that it is good thing to give back to people that are less fortunate

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