Erik Stafford

John A. Paulson Professor of Business Administration

Erik Stafford joined the faculty at HBS in July 1999, where he has taught finance in the required and elective curricula of the MBA Program and in the CFA Investment Management Workshop.

Erik's research efforts focus on investment management, capital markets, and the financial system. Two of his papers have won annual prizes for research excellence. "Managerial Decisions and Long-Term Stock Price Performance," written with Mark Mitchell, won the Merton Miller Prize for the paper deemed most significant in the 2000 Journal of Business , and "Limited Arbitrage in Equity Markets," written with Mark Mitchell and Todd Pulvino, won the Smith-Breeden Prize for outstanding paper in the Journal of Finance.

In addition to his work at Harvard, Erik has been an advisor to CNH Partners (affiliate of AQR). Erik has an undergraduate degree in Finance and Economics from the University of Maryland and a Ph.D. in Finance from the University of Chicago's Graduate School of Business.

Journal Articles

  1. The Economics of Structured Finance

    This paper investigates the spectacular rise and fall of structured finance. The essence of structured finance activities is the pooling of economic assets like loans, bonds, and mortgages, and the subsequent issuance of a prioritized capital structure of claims, known as tranches, against these collateral pools. As a result of the prioritization scheme used in structuring claims, many of the manufactured tranches are far safer than the average asset in the underlying pool. This ability of structured finance to repackage risks and to create "safe" assets from otherwise risky collateral led to a dramatic expansion in the issuance of structured securities, most of which were viewed by investors to be virtually risk-free and certified as such by the rating agencies. At the core of the recent financial market crisis has been the discovery that these securities are actually far riskier than originally advertised. We examine how the process of securitization allowed trillions of dollars of risky assets to be transformed into securities that were widely considered to be safe. We highlight two features of structured finance products—the extreme fragility of their ratings to modest imprecision in evaluating underlying risks, and their exposure to systematic risks—that go a long way in explaining the spectacular rise and fall of structured finance. We conclude with an assessment of what went wrong and the relative importance of rating agency errors, investor credulity, and perverse incentives and suspect behavior on the part of issuers, rating agencies, and borrowers.

    Keywords: Financial Crisis; Asset Management; Debt Securities; Investment; Risk Management; Behavior;

    Citation:

    Coval, Joshua D., Jakub W. Jurek, and Erik Stafford. "The Economics of Structured Finance." Journal of Economic Perspectives 23, no. 1 (winter 2009): 3–25. View Details
  2. Price Pressure Around Mergers

    Keywords: Price; Mergers and Acquisitions;

    Citation:

    Mitchell, Mark, T. Pulvino, and Erik Stafford. "Price Pressure Around Mergers." Journal of Finance 59, no. 1 (February 2004): 31–63. (

    Nominated for Brattle Prize. First Prize Paper For outstanding papers on corporate finance published in the Journal of Finance presented by Brattle Group, Inc.​

    View Details
  3. Limited Arbitrage in Equity Markets

    Keywords: Equity; Markets; Finance;

    Citation:

    Mitchell, Mark, T. Pulvino, and Erik Stafford. "Limited Arbitrage in Equity Markets." Journal of Finance 57, no. 2 (April 2002): pp. 551–584. (

    Winner of Smith Breeden Prize. Best Paper For the best finance research paper published in the Journal of Finance presented by Smith Breeden Associates, Inc.​

    View Details
  4. Managerial Decisions and Long-Term Stock-Price Performance

    Keywords: Management; Decision Making; Stocks; Performance; Price;

    Citation:

    Mitchell, Mark, and Erik Stafford. "Managerial Decisions and Long-Term Stock-Price Performance." Journal of Business 73, no. 3 (July 2000). (

    Winner of Merton Miller Prize Given annually for the best paper published in the Journal of Business​

    .) View Details

Working Papers

  1. The Cost of Capital for Alternative Investments

    This paper studies the cost of capital for alternative investments. We document that the risk profile of the aggregate hedge fund universe can be accurately matched by a simple index put option writing strategy that offers monthly liquidity and complete transparency over its state-contingent payoffs. The contractual nature of the put options in the benchmark portfolio allows us to evaluate appropriate required rates of return as a function of investor risk preferences and the underlying distribution of market returns. This simple framework produces a number of distinct predictions about the cost of capital for alternatives relative to traditional mean-variance analysis.

    Keywords: Cost of Capital; Financial Liquidity; Investment; Investment Return; Mathematical Methods; Risk and Uncertainty;

    Citation:

    Jurek, Jakub W., and Erik Stafford. "The Cost of Capital for Alternative Investments." Harvard Business School Working Paper, No. 12-013, September 2011. (NBER Working Paper Series, No. 19643, November 2013.) View Details
  2. Crashes and Collateralized Lending

    This paper develops a parsimonious static model for characterizing financing terms in collateralized lending markets. We characterize the systematic risk exposures for a variety of securities and develop a simple indifference-pricing framework to value the systematic crash risk exposure of the collateral. We then apply Modigliani and Miller's (1958) Proposition Two (MM) to split the cost of bearing this risk between the borrower and lender, resulting in a schedule of haircuts and financing rates. The model produces comparative statics and time-series dynamics that are consistent with the empirical features of repo market data, including the credit crisis of 2007-2008.

    Keywords: Financial Crisis; Borrowing and Debt; Cost of Capital; Credit; Financing and Loans; Interest Rates; Investment; Framework; Risk and Uncertainty; Financial Services Industry;

    Citation:

    Jurek, Jakub W., and Erik Stafford. "Crashes and Collateralized Lending." Harvard Business School Working Paper, No. 11-025, September 2010. View Details

Cases and Teaching Materials

  1. Valuation of AirThread Connections

    This case can be used as a capstone valuation exercise for first-year MBA students in an introductory finance course. A senior associate in the business development group at American Cable Communications, one of the largest cable companies in the U.S., must prepare a preliminary valuation for acquiring AirThread Connections, a regional cellular provider. The acquisition would give American Cable access to wireless technology and the wireless spectrum and enable the company to offer competitive service bundles including wireless, currently a hole in the company's service offering. Students learn the basic valuation concepts including DCF (discounted cash flow) using APV (adjusted present value) and WACC (weighted average cost of capital) and they must choose the appropriate approach for situations in which the capital structure is changing or assumed to be constant. Students must consider the effect of constant debt versus the D/V (debt-to-value ratio) in estimating betas and the costs of capital. In addition, students analyze the effects of non-operating assets on valuation. As an additional assignment, instructors can require students to consider the personal tax disadvantage of debt as well as the synergies American Cable expects to achieve following the acquisition.

    Keywords: communication; Assets; Present value; Cash flow; Tax accounting; Capital costs; capital structure; valuation; Synergy; Telephony; Wireless technologies; Communication Technology; Assets; Cost of Capital; Valuation; Cash Flow; Capital Structure; Accounting; Wireless Technology; Communications Industry; Media and Broadcasting Industry;

    Citation:

    Stafford, Erik, and Joel L. Heilprin. "Valuation of AirThread Connections." Harvard Business School Brief Case 114-263, March 2011. View Details
  2. Valuation of AirThread Connections (Brief Case)

    Teaching note for case #4263.

    Keywords: communication; Assets; Present value; Cash flow; Tax accounting; Capital costs; capital structure; valuation; Synergy; Telephony; Wireless technologies; Assets; Cost of Capital; Valuation; Capital Structure; Cash Flow; Communication; Taxation; Accounting; Wireless Technology;

    Citation:

    Stafford, Erik, and Joel L. Heilprin. "Valuation of AirThread Connections (Brief Case)." Harvard Business School Teaching Note 114-264, March 2011. View Details
  3. Valuation of AirThread Connections, Spreadsheet Supplement (Brief Case)

    Keywords: Communication, Assets, Present value, Cash flow, Tax accounting, Capital costs, Capital structure, Valuation, Synergy, Telephony, Wireless technologies; Assets; Cost of Capital; Valuation; Capital Structure; Cash Flow; Communication; Taxation; Accounting; Wireless Technology;

    Citation:

    Stafford, Erik, and Joel L. Heilprin. "Valuation of AirThread Connections, Spreadsheet Supplement (Brief Case)." Harvard Business School Spreadsheet Supplement 114-267, March 2011. View Details
  4. Valuation of AirThread Connections, Faculty Spreadsheet Supplement (Brief Case)

    Keywords: Communication, Assets, Present value, Cash flow, Tax accounting, Capital costs, Capital structure, Valuation, Synergy, Telephony, Wireless technologies; Assets; Cost of Capital; Valuation; Capital Structure; Cash Flow; Communication; Taxation; Accounting; Wireless Technology;

    Citation:

    Stafford, Erik, and Joel L. Heilprin. "Valuation of AirThread Connections, Faculty Spreadsheet Supplement (Brief Case)." Harvard Business School Spreadsheet Supplement 114-268, March 2011. View Details
  5. Harvard Management Company (2010)

    In February 2010, Jane Mendillo, CEO of Harvard Management Company, was reflecting on the list of issues facing Harvard University's endowment in preparation for the upcoming board meeting. The recent financial crisis had vividly highlighted several key issues including the adequacy of short-term liquidity, the effectiveness of portfolio risk management, and the balance of internal and external managers.

    Keywords: Financial Crisis; Higher Education; Asset Management; Financial Liquidity; Investment Portfolio; Risk Management; Education Industry; Financial Services Industry; Massachusetts;

    Citation:

    Perold, Andre F., and Erik Stafford. "Harvard Management Company (2010)." Harvard Business School Case 211-004, September 2010. (Revised May 2012.) View Details
  6. Leveraged Loans 2007

    The leveraged loan market was in a crisis during the summer of 2007, following many years of low realized volatility (less than 4% per annum), an index of leveraged loans had fallen over 5% in the month of July. A sudden drop in capital market prices for an asset class can be caused by news affecting fundamental values; or by a widespread liquidity shock. The implication of a shock to fundamental value is that the price drop is permanent, whereas if the underlying cause of the price drop is caused by a liquidity event, the situation may represent a profitable investment opportunity. Investors must assess the likely cause of the recent price drops in the leveraged loan market and determine an appropriate investment strategy.

    Keywords: History; Financial Liquidity; Investment; Financial Crisis; Market Transactions; Disruption; Decision Choices and Conditions; Competitive Strategy; Capital Markets; Crisis Management; Commercial Banking; Banking Industry; Financial Services Industry;

    Citation:

    Perold, Andre F., and Erik Stafford. "Leveraged Loans 2007." Harvard Business School Case 208-145, April 2008. (Revised December 2008.) View Details
  7. Dynamic Markets

    The Dynamic Markets course at Harvard Business School is organized around the hands-on application of financial decision making in a wide variety of capital market settings. The course relies heavily on in-class simulations of a range of market settings where students compete with their classmates for profits. The main pedagogical approach used in the course is what we call deriving by doing. The essential aspects of this pedagogy are dynamic decision settings, a strong reliance on competitive markets, and derivation of core concepts through active student decision-making. The upTick financial simulation software, developed at the Harvard Business School, is used to realistically recreate classic decision-settings in a competitive classroom setting. We convey the timing and uncertainty inherent in real-world finance problems by presenting the "case facts" sequentially (i.e., as they become available to the real-world decision maker), thereby allowing students to modify or reverse decisions as new information become available, and to respond strategically to the decisions of their competitors. Additionally, we clear student decisions in realistic capital markets, such that equilibrium outcomes are determined by competitive student interaction. Even though students participate in markets corresponding to a particular setting, the prices determined in the simulations are set by the participants and can depart from the historical prices within bounds set by the instructor.

    Keywords: Value Creation; Decision Making; Capital Markets; Competitive Strategy; Profit; Software; Information; Strategy; Price; Outcome or Result; Curriculum and Courses; Theory;

    Citation:

    Coval, Joshua D., and Erik Stafford. "Dynamic Markets." Harvard Business School Course Overview Note 208-143, March 2008. View Details
  8. 2006 Hurricane Risk

    In May 2006, a resident of Key West, Florida had to decide whether to renew his policy to insure against hurricane damage. The policy would cost $13,000 for one year, $5,000 more than what he paid in 2005. At the same time, a wealthy California resident was contemplating an opportunity to buy a "cat note" that offered a high yield, but with a chance of losing the full investment if severe hurricanes struck the coastline of the United States.

    Keywords: Capital Markets; Cost; Insurance; Price; Risk Management; California; Key West;

    Citation:

    Perold, Andre F., and Erik Stafford. "2006 Hurricane Risk." Harvard Business School Case 207-075, October 2006. (Revised March 2008.) View Details
  9. Convertible Arbitrage

    The goal of this simulation is to understand how convertible bonds can be viewed as a portfolio of simpler securities and to introduce an over-the-counter market. The convertible bonds that are available during the simulation are at-the-money and in-the-money so that changing credit risk exposure is not much of an issue. A convertible bond can be viewed as a simple coupon paying corporate bond plus a conversion option. A bond pricing model discounts the promised payments at a rate that compensates for time, risk, and expected loss (maturity matched Treasury yield plus a credit rating matched yield spread). The conversion option can be valued using the Black-Scholes call option pricing formula. The key is to recognize that each conversion option (one per bond) is equivalent to several equity call options (the conversion ratio determines how many equity options are implicit in each bond).

    Keywords: Bonds; Investment Portfolio; Price; Risk Management; Mathematical Methods;

    Citation:

    Coval, Joshua, and Erik Stafford. "Convertible Arbitrage." Harvard Business School Background Note 208-116, January 2008. View Details
  10. Equity Derivatives

    The goal of these simulations is to understand the dynamic replication technique behind the Black-Scholes/Merton options model. The simulations focus on a single stock and a risk-free discount bond, which are used to replicate a contingent payoff. The underlying stock and bond prices are randomly generated from the assumptions of the model, so that this simulation is testing the student's understanding and ability to use the model, rather than testing whether the model accurately explains prices. In each of the four simulations that make up this lesson, students are trying to replicate a contingent payoff, which is specified in terms of the closing stock price in one month (European-style derivative). The students are essentially working on an equity derivatives desk at a large bank and are responsible for delivering a derivative payoff to a client. The desk has taken in a premium upfront for guaranteeing the contingent payoff in one month's time. In the Black-Scholes/Merton model, a trader should be able to exactly match the contractual payment at expiration. Therefore, students are penalized based on the absolute difference between their actual ending value and a target ending value (starting value + derivative payoff). In particular, this difference is cumulated across all four simulations and then subtracted from their account.

    Keywords: Equity; Bonds; Stocks; Price; Risk Management;

    Citation:

    Coval, Joshua, and Erik Stafford. "Equity Derivatives." Harvard Business School Background Note 208-117, January 2008. View Details
  11. Equity Options

    The goal of this simulation is to understand the reliance of option values on volatility. When an investor trades an option, they are essentially trading volatility. Therefore, much of the focus in this lesson is on forecasting volatility. Students are able to use two primary methods for forecasting volatility in this lesson-historical and implied. Students are provided with a historical dataset, from which they can estimate historical volatility of the stock returns. They can also use the dataset to study various statistical relations between the securities. In particular, two of the three securities behave independently of the others. Thus, students are able to analyze the dataset to form views of how the security prices are likely to evolve relative to each other.

    Keywords: Volatility; Forecasting and Prediction; Stock Options; Investment Return; Price; Market Transactions; Mathematical Methods; Value;

    Citation:

    Coval, Joshua, and Erik Stafford. "Equity Options." Harvard Business School Background Note 208-118, January 2008. View Details
  12. Index Options

    The goal of this simulation is to understand the patterns in index option prices that are not predicted by the Black-Scholes model. In particular, the simulation focuses on two properties of options prices. First, at-the-money implied volatilities from index options tend to be larger than the realized volatility. Second, the implied volatilities from index options are increasing as the strike price falls relative to the current index level (i.e., out-of-the-month call options have larger implied volatilities than at-the-money call options). Students are given a dataset of relevant market information to analyze. From these materials, students are expected to develop an investment strategy that attempts to deliver low-risk profits from the index options market. The actual simulation is fairly short and simple. Students trade 1-month put and call options on the S&P 500 (SPX) at three different strike prices (10% out-of-the-money, at-the-money, and 10% in-the-money). The simulation covers five months of calendar time (5 sets of options) in about 35 minutes.

    Keywords: Volatility; Stock Options; Investment; Price; Profit; Risk Management; Mathematical Methods;

    Citation:

    Coval, Joshua, and Erik Stafford. "Index Options." Harvard Business School Background Note 208-119, January 2008. View Details
  13. Valuing Risky Debt

    This lesson develops the classical structural approach to pricing and hedging credit risk: Merton's (1974) contingent claims model of debt and equity claims. This model is used to make investment and risk management decisions in an over-the-counter (OTC) market for distressed bonds.

    Keywords: Borrowing and Debt; Credit; Investment; Price; Risk Management; Mathematical Methods; Valuation;

    Citation:

    Coval, Joshua, and Erik Stafford. "Valuing Risky Debt." Harvard Business School Background Note 208-111, January 2008. View Details
  14. Collateralized Debt Obligations (CDOs)

    This lesson integrated Merton's (1974) contingent claims model of debt and equity claims with the CAPM, which allows us to examine the risks and pricing of credit portfolios and the derivative claims issued against them. In particular, this model is used to make investment and risk management decisions in the market for collateralized debt obligations (CDOs).

    Keywords: Decision Choices and Conditions; Borrowing and Debt; Credit Derivatives and Swaps; Investment Portfolio; Risk Management;

    Citation:

    Coval, Joshua, and Erik Stafford. "Collateralized Debt Obligations (CDOs)." Harvard Business School Background Note 208-113, January 2008. View Details
  15. Asset Allocation I

    The goal of these simulations is to understand the mathematics of mean-variance optimization and the equilibrium pricing of risk if all investors use this rule with common information sets. Simulation A focuses on five to 10 years of monthly sector returns that are initially drawn from a known multivariate normal distribution. Mean-variance optimization is designed to produce the highest ratio of excess portfolio return to portfolio standard deviation (i.e. the highest Sharpe ratio) in this setting. Simulation B alters the setting by allowing students to determine expected returns through a simultaneous auction. We continue to have agreement over the covariance matrix, and implicitly over expected payoffs, but allow students to set market prices. The average portfolio weights across the 10 sectors is calculated and is used as the vector of market capitalization weights. With these market weights (w) and the given covariance matrix, the capital asset pricing model (CAPM) implied expected returns are calculated for each sector and compared with the student set expected returns.

    Keywords: Asset Pricing; Capital; Investment Return; Risk Management; Mathematical Methods;

    Citation:

    Coval, Joshua D., Erik Stafford, Rodrigo Osmo, John Jernigan, Zack Page, and Paulo Passoni. "Asset Allocation I." Harvard Business School Background Note 208-086, November 2007. View Details
  16. Event Arbitrage

    The event arbitrage module includes two simulation sessions. The first simulation focuses on analyzing and evaluating individual merger transactions, while the second simulation emphasizes managing a portfolio of individual positions and the limitations of arbitrage investing in real-world capital markets. The underlying data and information are derived from actual merger transactions and have been disguised to prevent students from knowing the outcome ahead of time.

    Keywords: Mergers and Acquisitions; Capital Markets; Financial Management; Investment Portfolio; Risk Management;

    Citation:

    Coval, Joshua D., and Erik Stafford. "Event Arbitrage." Harvard Business School Background Note 208-090, November 2007. View Details
  17. Bayesian Estimation & Black-Litterman

    Describes a practical method for asset allocation that is more robust to estimation errors than the traditional implementation of mean-variance optimization with sample means and covariances. The Bayesian inspired Black-Litterman model is described after introducing the intuition of the Bayesian approach to inference in a univariate setting.

    Keywords: Asset Management; Investment Portfolio; Mathematical Methods;

    Citation:

    Coval, Joshua D., and Erik Stafford. "Bayesian Estimation & Black-Litterman." Harvard Business School Background Note 208-085, November 2007. View Details
  18. Market Efficiency (TN)

    Teaching Note to (2-205-081).

    Citation:

    Coval, Joshua D., and Erik Stafford. "Market Efficiency (TN)." Harvard Business School Teaching Note 205-082, June 2005. (Revised October 2007.) View Details
  19. Price Formation (TN)

    Teaching Note to (2-205-076) and (2-205-077).

    Keywords: Price;

    Citation:

    Coval, Joshua D., and Erik Stafford. "Price Formation (TN)." Harvard Business School Teaching Note 205-078, June 2005. (Revised October 2007.) View Details
  20. Price Formation

    Investigates how prices are formed in competitive capital markets. Focuses on a single security called AOE. Students compete with computer traders and each other for market making and informed trading profits. Participants receive a variety of public news in the form of a research report on AOE, as well as subscriptions to news announcements and public quarterly earnings forecasts and releases. Participants also have access to costly private information in the form of one-week-ahead price targets for a per-use fee. The market structure is one with a centralized limit order book, but the ability to place limit orders is limited. The simulation of AOE is based on an actual security that has been disguised in time and industry to prevent students from anticipating the price path. All public news and contextual market information presented to students during the simulation correspond to actual information available to market participants in the real world at the time.

    Keywords: Capital Markets; Price; Profit; Corporate Disclosure; Newsletters; Industry Structures; Business Processes; Competitive Strategy;

    Citation:

    Coval, Joshua D., and Erik Stafford. "Price Formation." Harvard Business School Background Note 208-040, October 2007. View Details
  21. Market Efficiency

    Covers how prices react to information, the incentives for bringing information into prices, and the paradox of market efficiency in equilibrium--for investors to work hard keeping markets efficient, they must always be somewhat inefficient at the margin. Uses separate financial market simulation software.

    Keywords: Market Design; Price;

    Citation:

    Coval, Joshua D., Erik Stafford, Rodrigo Osmo, John Jernigan, Zachary Page, and Paul Passoni. "Market Efficiency." Harvard Business School Background Note 205-081, June 2005. (Revised October 2007.) View Details
  22. The Law of One Price

    Demonstrates the Law of One Price in practice. Using synthetic securities, students should observe opportunities to earn profits when spreads emerge between portfolios that offer identical payoffs. Uses separate uptick financial simulation software.

    Keywords: Price;

    Citation:

    Coval, Joshua D., Erik Stafford, Rodrigo Osmo, John Jernigan, Zack Page, and Paulo Passoni. "The Law of One Price." Harvard Business School Background Note 205-079, June 2005. (Revised October 2007.) View Details
  23. Giant Cinema

    The owner of Giant Cinema must decide whether to invest in a digital projector, a new technology for screening films, or purchase a traditional projector. The impact of the new technology is uncertain, and the case describes probabilities for different outcomes that students can incorporate in the financial analysis of the proposed project.

    Keywords: Entrepreneurship; Film Entertainment; Technology Adoption; Financial Strategy; Investment; Outcome or Result; Risk and Uncertainty; Technology; Entertainment and Recreation Industry;

    Citation:

    Baker, Malcolm P., Richard S. Ruback, Erik Stafford, and Kathleen Luchs. "Giant Cinema." Harvard Business School Case 204-052, September 2003. (Revised January 2004.) View Details
  24. Ocean Carriers

    In January 2001, Mary Linn, vice president of finance for Ocean Carriers, a shipping company with offices in New York and Hong Kong, was evaluating a proposed lease of a ship for a three-year period, beginning in early 2003. The customer was eager to finalize the contract to meet his own commitments and offered very attractive terms. No ship in Ocean Carrier's current fleet met the customer's requirements. Mary Linn, therefore, had to decide whether Ocean Carriers should immediately commission a new capsize carrier that would be completed two years hence and could be leased to the customer.

    Keywords: Cash Flow; Forecasting and Prediction; Cost of Capital; Leasing; Corporate Strategy; Valuation; Shipping Industry; New York (city, NY); Hong Kong;

    Citation:

    Stafford, Erik, Angela Chao, and Kathleen Luchs. "Ocean Carriers." Harvard Business School Case 202-027, September 2001. (Revised April 2002.) View Details
  25. Strategic Capital Management, LLC (A)

    Strategic Capital Management, LLC, is a hedge fund that is planning to make financial investments in Creative Computers and Ubid. Creative Computers recently sold approximately 20% of its Internet auction subsidiary, Ubid, to the public at $15 per share. Ubid's stock price closed the first day of trading at $48, giving Ubid a $439 million market capitalization. Paradoxically, the parent's stock price did not keep pace with that of its subsidiary. At the end of Ubid's first day as a public company, Creative Computers' equity value was less than the value of its stake in Ubid. The market prices implied that Creative Computers' non-Ubid assets had a value of negative $79 million. The relative prices and ownership link between Creative Computers and Ubid suggest a potential arbitrage opportunity. To evaluate how best to exploit this investment opportunity, Elena King, the manager of the hedge fund, must understand both the risks and expected returns associated with different long and short equity positions.

    Keywords: Risk and Uncertainty; Business Subsidiaries; Internet; Investment Funds; Price; Performance Efficiency; Capital Markets; Auctions; Investment Return; Equity; Planning; Financial Services Industry;

    Citation:

    Mitchell, Mark L., Erik Stafford, and Todd Pulvino. "Strategic Capital Management, LLC (A)." Harvard Business School Case 202-024, August 2001. (Revised April 2002.) View Details
  26. Strategic Capital Management, LLC (B)

    Supplements the (A) case.

    Keywords: Risk and Uncertainty; Business Subsidiaries; Internet; Investment Funds; Price; Performance Efficiency; Capital Markets; Auctions; Investment Return; Equity; Planning; Financial Services Industry;

    Citation:

    Mitchell, Mark L., Erik Stafford, and Todd Pulvino. "Strategic Capital Management, LLC (B)." Harvard Business School Case 202-025, August 2001. View Details
  27. Strategic Capital Management, LLC (C)

    Supplements the (A) case.

    Keywords: Risk and Uncertainty; Business Subsidiaries; Internet; Investment Funds; Price; Performance Efficiency; Capital Markets; Auctions; Investment Return; Equity; Planning; Financial Services Industry;

    Citation:

    Mitchell, Mark L., Erik Stafford, and Todd Pulvino. "Strategic Capital Management, LLC (C)." Harvard Business School Case 202-026, August 2001. View Details
  28. Cost of Capital at Ameritrade

    Ameritrade Holding Corp. is planning large marketing and technology investments to improve the company's competitive position in deep-discount brokerage by taking advantage of emerging economies of scale. In order to evaluate whether the strategy would generate sufficient future cash flows to merit the investment, Joe Ricketts, chairman and CEO of Ameritrade, needs an estimate of the project's cost of capital. There is considerable disagreement as to the correct cost of capital estimate. A research analyst pegs the cost of capital at 12%, the CFO of Ameritrade uses 15%, and some members of Ameritrade management believe that the borrowing rate of 9% is the rate by which to discount the future cash flows expected to result from the project. There is also disagreement as to the type of business that Ameritrade is in. Management insists that Ameritrade is a brokerage firm, whereas some research analysts and managers of other online brokerage firms suggest that Ameritrade is a technology/Internet firm. To obtain executable spreadsheets (courseware), please contact our customer service department at custserv@hbsp.harvard.edu.

    Keywords: Developing Countries and Economies; Asset Pricing; Cash Flow; Cost of Capital; Investment; Marketing; Mathematical Methods; Competition; Technology; Internet; Financial Services Industry;

    Citation:

    Mitchell, Mark L., and Erik Stafford. "Cost of Capital at Ameritrade." Harvard Business School Case 201-046, October 2000. (Revised April 2001.) View Details