Calculations needed for Exam Flashcards
Running yield of an dividend or investment?
(Annual income ÷ current market price) x 100 = Running yield.
Dividend yield
(net dividend ÷ share price) x 100 = Dividend yield
Price/earnings ratio and Price earnings to growth ratio (PEG)
Price/earnings ratio
* Market price for the share ÷ earnings per share (EPS)
EPS = Net earnings ÷ shares outstanding.
Price/earnings ratio and Price earnings to growth ratio (PEG)
- (Price/earnings ÷ Annual EPS growth)
Net asset value
Net asset value (NAV) is the market value of all of a company’s assets, less liabilities, divided by the number of shares issued:
* (Assets - liabilities) ÷ Number of shares issued
Gearing calculation
Calculated by dividing the long‑term debt by shareholder capital and reserves
* Debt ÷ capital and reserves
holding period return (or money‑weighted return)
I is the income received (this does not include any income that is reinvested).
C0 is the original investment.
C1 is the final investment value.
(I + (C1-C0) ÷ C0)) x 100 = Holding period return
Annualising the return (Holding period return)
(1 + r1) (1 + r2) = (1 + R)n
r1 is the return for the first period and r2 is the return for the second period. n is the
number of holding periods by which to multiply the return.
Example:
If Kenesha had also invested in a share that showed a holding period return of 5 per cent
over three months, we would annualise this as:
1.05 × 1.05 × 1.05 × 1.05 = 1.215, which is 21.5% annualised return.
The Sharpe ratio
Risk-rated returns
(Return - risk-free return) ÷ Standard deviation
Example
A unit trust gives a mean return of 7 per cent.
The unit trust’s standard deviation is 5.
The risk‑free investment return is 3 per cent.
The Sharpe ratio would be:
(7 – 3) ÷ 5%
The fund provided 0.8 per cent return above the risk‑free rate for every unit of risk
taken.
Compounding interest
A = P(1+ r÷n)^nt
A = the future value of the investment/loan, including interest
P = the principal investment amount (initial deposit or loan amount)
r = the annual interest rate (decimal form)
n = the number of times interest is compounded per year
t = the number of years the money is invested or borrowed for
Discounting
PV = FV ÷ (1+r)^t
PV = Present Value (the value today of a future cash flow)
FV = Future Value (the amount of money in the future)
r = Discount rate (the rate of return or interest rate, expressed as a decimal)
t = Time (the number of periods, typically in years, until the cash flow occurs)
Calculating the redemption yield
Income yield + capital gain yield
Income yield
* Coupon/ price = Income yield %
Captail gain yield
1. Purchase price - Redemption price = Gain
2. Annualise the gain > Gain ÷ Years to maturity = Annual gain
3. Captial loss or gain % = Annual gain ÷ Purchase price
4. Add both percentages together
