CALCULATIONS

Question 1

Liquidity Ratio

Answer 1

Current assets - Stock / Current liabilities

Question 2

Sharpe Ratio

Answer 2

Return on the investment - risk-free return / standard deviation of the return on the investment

Question 3

Calculating Interest

Answer 3

£2,000 invested at a rate of 5%. in 5 years the increase would be?

2000 x (1.05)(P5) = £2,552.56

Question 4

Annual Equivalent Rate (AER)

Answer 4

A savings account offers a nominal interest rate of 2.8% payable quarterly. What is the annual equivalent rate?

2.8 / 4 = 0.07
1.007 (P4) - 1 x 100 = 2.829537 (2.83%)

Question 5

Accumulation Rate of Return

Answer 5

Rahid invests £10,000 at rate of 4% compound for three years and then re-invests this amount for a further four years at 5% compound. What capital sum will he attain by the end of the investment period?

10000 x (1.04)(P3) = £11,248.64

11248.64 x (1.05) (P4) = £13,672

Question 6

Current Ratio of Business

Answer 6

Current assets and dividing by current liabilities.

Question 7

Effective Annual Rate (EAR)

Answer 7

Diane has a bank account paying a nominal 5.6% interest on a monthly basis. What is the effective annual rate, to two decimal points?

= ( 1 + (0.056 / 12 )) (P12) - 1 x 100 = 5.745 (5.75)