Equations Flashcards
CAPM equation is used to derive the expected return for a security as a combination of the return on a risk-free asset + a risk premium. It’s expressed as:
E(Ri) = Rf + Bi(Rm - Rf)
Where:
E(Ri) is the expected return
Rf is the return of a risk-free asset
Bi is the sensitivity of the asset
Rm is the expected portfolio return
(Rm - Rf) is the market risk premium
Bi(Rm - Rf) is the asset risk premium
Compound interest formula
FV = PV(1 + r) to the power of n
Compound rate of return
FV = PV(1+r)^n
Step 1: FV / PV = (1+r)^n
Step 2: n ☑️ (FV/PV) = 1 + r
Step 3: (1+r) - 1
Step 4: express as percentage
Changes to compound rate
FV = PV(1+r1)^n1 x (1+r2)^n2
Effective Annual Rate (EAR)
EAR = (1 + r/n) ^ n - 1
Present Value is calculated as
PV = FV/(1-r)^n
Accumulation of investment
FV = P { ((1+r)^n - 1) / r }
Discounted cash flow formula
PV = FV / (1 + r)^n
Annuity formula
A = P { (1-(1+r)^-n) / r }
Real Returns are calculated as
Rreal = Rnom - Rinf
Nominal return is calculated as
Rnom = Rreal + Rinf
NAV per share is calculated as
(It’s a long one…)
TOTAL VALUE of Trust’s listed investments at mid-market prices + unlisted investments as valued by the directors + cash and other assets
LESS nominal value of loans, debentures and preference shares
NAV per share is calculated as
Available shareholders’ funds / number of ordinary shares in issue
Diluted NAV per share is calculated as
(Net assets + money subscribed by warrant holders) / (ordinary shares in issue + new shares issued to warrant holders)
Discount of a share is calculated as
((NAV - share price) / NAV) x 100
Expressed as a percentage
