Calculations

Question 1

Current Yield (stocks)

Answer 1

Annual dividend
_________________
Current market price

Question 2

Current Yield (debt security)

Answer 2

Annual interest
_________________
Current market price

Question 3

Tax-equivalent yield

Answer 3

Municipal rate
________________
(100% - tax bracket)

Question 4

Dollar Cost Average

Answer 4

Total dollars invested
_______________________
Number of shares purchased

Question 5

Average market price

Answer 5

Share price total
___________________
Number of investments

Question 6

Shareholders equity

Answer 6

Assets - liabilities

Question 7

Total return

Answer 7

Income (dividends or interest) + gain/loss
________________________________
Original investment

Question 8

Annualized return

Answer 8

Total return on an annualized basis

Question 9

Inflation-adjusted (Real) return

Answer 9

Total return - CPI

Question 10

After-tax return

Answer 10

Total return - marginal tax bracket

Question 11

Rule of 72 (interest rate known)

Answer 11

72
____________ = Years to double investment
Interest rate

Question 12

Rule of 72 (years known)

Answer 12

72
___________ = Interest rate to double investment
Years

Question 13

Arithmetic mean

Answer 13

Simple average of the numbers

Question 14

Median

Answer 14

The number in the middle of the list, equal amounts of numbers above and below.

Question 15

Mode

Answer 15

Number appearing most frequently in a list.

Question 16

Range

Answer 16

Difference between the highest and lowest numbers.

Question 17

Alpha (RF not given)

Answer 17

Actual return - (beta x market return)

Question 18

Alpha (RF given)

Answer 18

(Actual return - RF) - (beta x [market return - RF])

Question 19

Sharpe ratio

Answer 19

Actual return - RF
_________________
Standard deviation

Question 20

Four facts about Internal Rate of Return (IRR)

Answer 20

1. It is the discount rate that makes the future value of an investment equal to its present value.
2. In order to compute, it is necessary to know the initial cost of the investment.
3. In order to compute, it is necessary to know the cash flow of the investment.
4. It is equivalent to a bond’s yield to maturity.

Question 21

The value of money today

Answer 21

Present Value

Question 22

The value of money sometime in the future

Answer 22

Future Value

Question 23

The difference between the value of money today and sometime in the future

Answer 23

Time Value of Money

Question 24

Future Value formula

Answer 24

FV = PV x (1 + r)n

Future Value = Present Value times (1 + Rate) to the nth power.

Question 25

Intrinsic Value

Answer 25

The potential profit to be made by exercising an option.

Question 26

Market Capitalization

Answer 26

(CMV/share) x outstanding shares

Question 27

Capital Asset Pricing Model (CAPM)

Answer 27

Required return = Risk Free rate + beta (Market return - Risk Free return)
RF + beta (MR - RF)