Today's class started with a test on whether you can detect the direction bias will take, based on who or why a valuation is done. The solutions are posted online on the webcast page for the class. We then moved on to talk about the three basic approaches to valuation: discounted cash flow valuation, where you estimate the intrinsic value of an asset, relative valuation, where you value an asset based on the pricing of similar assets and option pricing valuation, where you apply option pricing to value businesses. With each approach, we talked about the types of assets that are best priced with that approach and what you need to bring as an analyst/investor to the table. For instance, in our discussion of DCF valuation and how to make it work for you, I suggested that there were two requirements: a long time horizon and the capacity to act as the catalyst for market correction. Since I mentioned Carl Icahn and Bill Ackman as hostile acquirers (catalysts), you may want to look at Herbalife, the company that Ackman has targeted as being over valued and Icahn did for being under valued. See if you can get a list going of how each is trying to be the catalyst for the correction... and think about the dark side of this process. Start of the class test: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/biastestforclass.pdf Slides: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/ValIntroSpr21.pdf Post class test: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session2test.pdf Post class test solution: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session2soln.pdf

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