Equity Investments Formulas

Question 1

Margin Call Price

Answer 1

Po * ([1 - initial margin] / [1- maintenance margin])

Question 2

Price weighted index

Answer 2

Sum(Stock Prices) / number of stocks in index, adjusted for split

Question 3

Current Index Value

Answer 3

[Current Total Market Value * base year index] / base year total market value

Question 4

Equal weighted

Answer 4

Change in Index = % difference / number of stocks

Question 5

Dividend Discount Model

Answer 5

- Vo = SUM[Dt / (1+ke)^t]
Vo = value of stock 
ke = Required RoR
Dt = dividends at time t
- based on rationale that the intrinsic value of stock is the PV of its future dividends

Question 6

One-year holding DDM

Answer 6

value = (dividend + year end price ) / (1+ke)

Question 7

Multiple Year Holding Period DDM

Answer 7

[D1 / (1+ke)] + [D2 / (1+ke)^2] + [ P2/(1+ke)^2]

Question 8

Free Cash Flow to Equity

Answer 8

FCFE = Net Income + Depreciation - increase in working capital - fixed capital investment - debt principal repayments + new debt issues

= CFO - FCinv + net borrowing

Question 9

Preferred Stock Value

Answer 9

Dp / Kp

Question 10

Gordon Growth Model

Answer 10

Vo = [Do*(1+gc)] / (ke-gc) == D1 / (ke - gc)

- assumes annual growth rate of dividends, gc, is constant

Question 11

sustainable growth

Answer 11

= (1 - dividend payout rate) * ROE

= retention rate * ROE

Question 12

Multistage Dividend Growth Model

Answer 12

Value = [D1 / (1+ke)] + [D2 /(1+ke)^2] +…+ [Dn/(1+ke)^n] + {Pn/(1+ke)^n]

Question 13

Price to Earnings Ratio

Answer 13

Price / EPS

Question 14

Price-Sales Ratio

Answer 14

Price / Sales per share

Question 15

Price-Cash Flow

Answer 15

Stock Price / CFops

Question 16

Justified P/E

Answer 16

(D1/E1) / (ke-gc)

Question 17

Enterprise Value

Answer 17

Mkt value of common stock + Mkt value of preferred stock + mkt value of debt - cash - ST investments

Question 18

Earnings Multiplier Model

Answer 18

Po/E1 = (D1/E1) / (ke-gc) = payout ratio / (ke-gc)

Question 19

Leading P/E

Answer 19

Price per share / forecast EPS next 12 mo.

Question 20

Trailing P/E

Answer 20

Price per share / EPS previous 12 mo.

Question 21

P/B

Answer 21

Price per share / book value per share

Question 22

P/S

Answer 22

Price per share / Sales per share

Question 23

P / CF

Answer 23

Price per share / Cash Flow per share

Question 24

Betai

Answer 24

= COVmkt / sigma^2

= RHOmkt * (sigma,i/signma,mkt)

Question 25

Equation of CML

Answer 25

E(Rp) = Rf + (E(Rm) - Rf)*( sigmap/sigmam)