Finance – Fundamental Problems and Solutions

Zhiqiang Zhang is an associate professor in the finance area at the School of Business, Renmin University of China. He currently teaches courses like corporate finance, valuation, real option etc. for the undergraduate and graduate students as well as MBA students. His primary research interest is in corporate finance and asset pricing. He has more than 30 papers published in domestic and international journals, and he has written and translated (from English to Chinese) more than 10 books in the area of finance. His researches can be summarized as three series in finance. The first series is mainly concerning the valuation. He finds a brand-new way of valuation. Based on the new valuation method, he builds new stock valuation model, which can overcome most of the shortcomings of traditional model (such as Gordon growth model); he further derives the theoretical models of P/E, P/B, and P/S which is useful in stock and portfolio valuation as well as stock market bubble measuring. The second series is mainly concerning incorporating risk into valuation. He derives the theoretical models of certainty equivalent, risk equivalent (a brand new method to value risk), risk premium and the new capital asset pricing model (CAPM) accounting for both systematic and non-systematic risks. This may be the most important progress in this area since Sharpe's CAPM (1964). The third series is mainly concerning firm's capital structure decision. He solve the problem of optimal capital structure by building the new models of tax shield and bankruptcy cost and further deriving the optimal capital structure model based on the trade-off between the tax shield and the bankruptcy cost. This may be the most important progress in this area since MM model I and II (1958 and 1963). All his solutions and models are theoretical and decision-oriented, hence have vast application potential in academic research as well as in practical decision-making, especially in the valuation, investment, capital budgeting, risk management, financing and capital structure decision, etc.

• Finance and its Fundamental Problems.- Does a Positive Perpetual Growth Rate Exist?.- Valuation Based on Required Payback Period.- Certainty Equivalent, Risk Premium and Asset Pricing.- Tax Shield, Bankruptcy Cost and Optimal Capital Structure.