Calculations

Question 1

s1 conversion prem/discount on convertible pref shares

Answer 1

conversion ratio x convertible share market price
/
ordinary share market price

-1, x 100

Question 2

s2 taxation on dividend income

Answer 2

• £2,000 div allowance
  remainder taxed @ marginal dividend rates

BR 8.75%
HR 33.75%
AR 39.35%

Question 3

s3 warrants

Answer 3

warrant conversion prem

exercise price + warrant price
/
ordinary share price

minus 1, x 100
— — — — — — — — — —
warrant gearing ratio

ordinary share price
/
warrant price

x100
— — — — — — — — — —
cash pay out (covered warrant value at expiry)

ordianry - strike / parity

Question 4

s4 CFDs

Answer 4

how many shares were purchased?

how many shares were sold & at what price?

deduct the initial investment from the answer

Question 5

s5 conversion prep/discount on convertible bonds

Answer 5

(USE NOMINAL FIGURES)

market price of convertible stock
/
conversion ratio price x market price of ordinary shares (FIRST)

minus 1, x100

OR NOMINALISE

Question 6

s7 interest yield

Answer 6

coupon
/
clean price

x 100

Question 7

s8 redemption yield

Answer 7

step 1: workout the interest yield (what is the intr yield?)
step 2: nominal price - clean price (is it capital gain or loss?)
step 3: calculate capital gain (or) loss per year (what is the gain or loss per year?)
step 4: capital gain (or) loss per year / clean price x 100 (as a % of the price paid)
step 5: add [or] subtract result onto the interest yield

basic tax payer

net flat yield = intr yield x80/100

Question 7

s9 modified duration

Answer 7

how sensitive a bonds price is to change in intr rates

duration
/
1 + gross redemption yield

GRY as % nominal

Question 8

s10 effective rate of interest

Answer 8

(1+r/n)^n - 1

x100

— — — — — — — — — —

r = make sure to use % nominal

Question 9

s11 taxation of interest income

Answer 9

• PSA
  BR £1,000
  HR £500
  AR Nil

-remainder taxed @ marginal income rates
BR 20%
HR 40%
AR 45%

Question 10

s13 order-driven markets

Answer 10

buy and sell

based on the opposite side of the order book

Question 11

s14 scrip dividends

Answer 11

how many would it offer?

share price
/
dividend per share
= 1 new share for every x held

how many can be taken?

shares held / ANS

price of stare price = cost of shares

cash dividend?

shares held * dividend per share

Question 12

s15 rights issues, bonus issues & share splits

Answer 12

ex rights price

total value
/
shares in issue now

Question 13

s16 operating margin

Answer 13

operating profit
/
sales

x 100

Question 14

s17 net margin

Answer 14

net profit after taxation
/
sales

x100

Question 15

s18 ROE

Answer 15

measures the % return on capital given by shareholders

net profit after taxation (and after preference dividends)
/
capital and reserves (shareholders funds)

x100

Question 16

s19 ROCE

Answer 16

profit before interest & taxation
/
capital employed

x 100

% return achieved on capital employed. Total assets - current liabilities

Question 17

s20 gearing ratio

Answer 17

long term debts + preference shares
/
ordinary shareholder funds

x 100
— — — — — — — — — —

how gearing levels affect profitability?

• exacerbates profits as well as low ROE
• if profits fall, companies are less likely to be able to secure loans
• any increases in interest rates will increase costs for highly geared companies

Question 18

s21 interest cover

Answer 18

profit before interest and tax
/
gross interest payable

what does the interest cover show?

• how many times the interest bill could be paid out of current profits

Question 19

s22 working capital ratio

Answer 19

current assets
/
current liabilities

Question 20

s23 liquidity ratio

Answer 20

current assets - stocks
/
current liabilities

what should the liquidity ratio for a company generally be?
- be at least 1.0
- cannot be applied to all industries (supermarket, buy on credit for cash and have high turnover of stock)

Question 21

s24 debt turnover

Answer 21

sales
/
debtors

efficency in collecting debts
(klarna, lower the better)

Question 22

s25 stock turnover

Answer 22

cost of sales
/
stock

efficency in managing stock

Question 23

s26 credit turnover

Answer 23

cost of sales
/
trade creditors

how many times it pays it’s creditors

Question 24

s27 sales per employee

Answer 24

sales
/
number of employees

Question 25

s28 earnings per share

Answer 25

profit attributable to ordinary share holders
/
number of ordinary shares in issue

(profit figure used is after tax and dividends to preference shareholders)

— — — — — — — — — —

What does earnings per share represent?

• it represents the amount in pence that the company has earned during the year for each ordinary share holder

Question 26

s29 price earnings ratio

Answer 26

share price
/
earnings per share

Question 27

s30 dividend cover

Answer 27

earnings per share
/
net dividend per share

— — — — — — — — — —

high dividend cover meaning?

• likely the company can maintain dividends if profits were to fall
• means the company is retaining profits for reinvestment

Question 28

s31 dividend yield

Answer 28

dividend per share
/
current share price

*100

Question 29

s32 price to book ratio

Answer 29

current share price
/
net asset value per share

— — — — — — — — — —

NAV is

net assets attributable to ordinary shareholders
/
number of ordinary shares in issue

Question 30

s33 dividend discount models

Answer 30

Divs are consistent

dividend
/
return on equity
——————-
Gordons growth model:

dividend x increase
/
return on equity - dividend growth

Question 31

s34 NAV

Answer 31

net assets attributable to ordinary shareholders
/
number of ordinary shares in issue

Question 32

s35 CAPM

Answer 32

𝐸(𝑅𝑖)= 𝑅𝑓 + 𝛽𝑖[𝐸𝑅𝑚)−𝑅𝑓]

E(Ri) = Expected return of investment
Rf = Risk-free return
E(Rm) = Expected market return
𝛽 = 𝑠𝑒𝑛𝑠𝑖𝑡𝑖𝑣𝑖𝑡𝑦𝑡𝑜𝑚𝑎𝑟𝑘𝑒𝑡

Question 33

s36 investment data

Answer 33

1. Arithmetic mean
2. Median share price

Question 33

s37 present value

Answer 33

PV= FV / (1 + r)^𝑛

Question 34

s38 standard deviation

Answer 34

1. Difference between actual and expected return
2. x2 answer
3. Ans * probability
4. Sum results to get the variance
5. x2 variance

Question 35

s39 sharpe ratio

Answer 35

𝑟𝑒𝑡𝑢𝑟𝑛 − 𝑟𝑖𝑠𝑘 𝑓𝑟𝑒𝑒 𝑟𝑒𝑡𝑢𝑟𝑛
/
𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛

Question 36

s40 alpha

Answer 36

𝑎𝑐𝑡𝑢𝑎𝑙 𝑟𝑒𝑡𝑢𝑟𝑛 − [𝑅𝐹 + 𝛽𝑖(𝑅𝑀 − 𝑅𝐹)]

Question 37

s41 information ratio

Answer 37

𝑅𝑝− 𝑅𝐵
/
𝑡𝑟𝑎𝑐𝑘𝑖𝑛𝑔 𝑒𝑟𝑟𝑜𝑟

consistency manager beats a benchmark

Question 38

s42 total return (holding period return)

Answer 38

𝐷+𝑉1−𝑉0
/
V0

*100
— — — — — — — — — —
D = income
V1 = selling price
V0 = acquisition price

Question 39

s43 MWR

Answer 39

𝐷+𝑉1–𝑉0−𝐶
/
𝑉 + (𝐶 × 𝑛/12 )

*100

— — — — — — — — —
R = rate of return
V0 = value of portfolio at the start of the period
V1 = value of the portfolio at the end of the period
D = Income during the period
n = number of months remaining in the year
C = new money introduced during the year

Question 40

s44 TMW

Answer 40

v1 / v0

x

v2 - 1 / v1 + c