Formulars

Question 1

Market capitalization X

Answer 1

A company’s market capitalization (or market cap) is the price per share multiplied by the number of shares outstanding. If a company has 15 million shares of stock outstanding and the price per share is $10, the market capitalization is $150 million.

Question 2

Current yield (stock) /

Answer 2

Annual dividend / Current market price

Question 3

Current yield (debt security) /

Answer 3

Annual interest / Current market price

Question 4

Number of shares for conversion /

Answer 4

Par value / Conversion price

Question 5

Parity /

Answer 5

Bond market value / Number of shares

Question 6

Tax-free equivalent yield X

Answer 6

Corporate rate × (100% – tax bracket)

Question 7

Tax-equivalent yield* /

Answer 7

Municipal rate / (100% – tax bracket)

Question 8

NAV of mutual fund share /

Answer 8

Fund NAV/ Number of shares outstanding

Question 9

Dollar cost average /

Answer 9

Total dollars invested / Number of shares purchased

Question 10

Average market price /

Answer 10

Share price total / Number of investments

Question 11

Shareholders’ equity Total return –+

Answer 11

Assets – liabilities

income (dividends or interest) + gain or loss /original investment

Question 12

Annualized return

Answer 12

Total return on an annualized basis

Question 13

Inflation-adjusted (real) return –

Answer 13

Total return minus the CPI

Question 14

After-tax return –

Answer 14

Total return minus the marginal tax bracket

Question 15

Rule of 72 /

Answer 15

Divide 72 by known interest rate = number of years to double investment; or, divide 72 by known number of years = interest rate required to double investment

Question 16

Median

Answer 16

In a group of numbers, the one with an equal above and below, i.e., the number in the middle

Question 17

Mode

Answer 17

In a group of numbers, the one appearing most frequently

Question 18

Range

Answer 18

In a group of numbers the difference between the highest and the lowest one

Question 19

Alpha (RF not given) –

Answer 19

Actual return – (beta × market return)

Question 20

Alpha (RF given) –

Answer 20

(Actual return – RF) – (beta × [market return – RF]}

Question 21

Sharpe ratio –

Answer 21

actual return – RF / standard deviation

Question 22

Internal Rate of Return IRR +

Answer 22

Price, Interest rate, Yield to Maturity

Question 23

A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the security’s 5-year term, the inflation rate is 4%. What is the amount of the final semiannual interest check?

Answer 23

The semiannual interest of a TIPS bond is computed on the basis of the inflation-adjusted principal. Because the principal increases with the inflation rate, at the end of the 5-year term, it has grown to $1,219 ($1,000 × 102% ten times). Therefore, the final interest check is for $1,219 × 1.75% (remember it is a semiannual check).

Question 24

Discount Cash Flow +

Answer 24

future coupons + maturity value