Calculation

Question 1

Margin Maintenance Formula

Answer 1

( (1-initial margin %)/(1-maintenance margin %) ) X purchase price of stock

Question 2

Required Rate of Return formula

Answer 2

Risk-free rate (RFR) + (market rate - RFR) * Beta

aka r(f) + (r(m) - r(f)) * B

Question 3

Dividend Discount Model (DDM)

Answer 3

(current dividend * (1 + growth rate))/(required rate of return - growth)

aka D(o)(1+q)/(r-g)

Question 4

Standard deviation on HP Calc

Answer 4

Sigma+ after each #, then S(x) (gold + 8)

Question 5

Coefficient of Variation

Answer 5

Standard deviation (sigma) % expected return

Question 6

Covariance(ij)

Answer 6

correlation coefficient(ij) * standard deviation of (i) * standard deviation of (j)

aka P(ij)sigma(i)sigma(j)

Question 7

Correlation Coefficient (P(ij))

Answer 7

Covariance(ij)/Sigma (i) Sigma (j)

Question 8

Beta

Answer 8

Correlation Coefficient(i)*Standard Deviation (i)/Standard deviation of the market

OR

Covariance(im)/standard deviation of the market ^2

Question 9

Required Rate of Return

Answer 9

Risk-free rate + (market - risk-free rate) * Beta

Question 10

Required Rate of Return with Current price, dividend, and growth rate

Answer 10

(Current dividend (1+growth rate)/price) + dividend growth

Question 11

Change in bond price

Answer 11

-duration * (change in yield/1+yield)

Question 12

Calculate Alpha

Answer 12

Return - risk-free rate + (market-RFR) * beta

Positive good, negative bad

Question 13

Sharpe Calculation

Answer 13

r(p) - r(f)/sigma (p)

ALL #S SIGMA+, GOLD + 7 = r(p)
GOLD+8 = (sigma (p))

Question 14

Capitalization Value

Answer 14

Annual Income/Capitalization Rate

Question 15

NOI Calculation

Answer 15

Gross Rental Receipts
+ Non-rental income
= Potential Gross Income (PGI)
- vacancy + collection losses
= Effective Gross Income
- Operating Expenses
= NOI
aka Property’s cash flow

Question 16

Property’s Intrinsic Value

Answer 16

Once you’ve calculated NOI,

IV = NOI/Cap Rate

Question 17

Coefficient of Variation Formula

Answer 17

Standard Deviation/Mean (average) return

Question 18

Standard Deviation vs Beta

Answer 18

Std Dev measures VARIABILITY of returns in a NONDIVERSIFIED portfolio and is a measure of TOTAL RISK.
Beta measures VOLATILITY of returns in a DIVERSIFIED portfolio and is a measure of SYSTEMATIC RISK.

Question 19

Current Yield

Answer 19

Annual interest in dollars/Bond’s current price

Question 20

Geometric Mean - definition/calculation

Answer 20

aka time-weighted return. To calculate:

1. Add 1 to the returns (aka 25% is 1.25, -12% is .88)
2. Multiply the returns
3. The result is Future Value (FV)
4. -1 is ALWAYS THE PRESENT VALUE
5. N is the number of years
6. solve for i

Question 21

time-weighted vs dollar-weighted

Answer 21

Time-weighted is investment performance as a % of capital at work. Used to compare managers.

Dollar-weighted measure changes in total dollar value. In other words, IRR/NPV. Used for absolute $ amts for financial goals.

Question 22

Real Rate of Return

Answer 22

= ((1+ after-tax return/1+ inflation rate) -1) *100

Question 23

Current Yield

Answer 23

Annual interest in dollars/Bond’s current price

Question 24

Taxable Equivalent Yield

Answer 24

tax-exempt yield/1-tax rate

OR

tax-exempt yield = TEY X (1-tax rate)

Question 25

Formula for employer contrib to Keogh

Answer 25

1. Salary X 92.35 X .0765 = salary for contrib, then
2. ((Plan Contrib %)/(1+plan contrib %))
   = Profit Sharing Amount

Question 26

SHORT-CUT ON KEOGH CALC

Answer 26

AFTER self-employment tax of .07065, Take Schedule C Net Income, then:

1. Multiply by 12.12% for 15% contrib for non-owner employees
2. Multiply by 18.59% for 25% contrib for non-owner employees