Formulas Flashcards
Interest yield
Coupon or nominal yield divided by the clean price multiplied by 100
Coupon or nominal yield / clean price x100
this is essentially a percentage of the coupon in terms of the price paid
Chapter 1
Redemption yield
Interest yield plus or minus the gain or loss to maturity divided by the number of years to maturity divided by the clean price multiplied by 100
interest yield +- ((gain to maturity/no years to maturity)/clean price) x 100
Chapter 1
Earnings per share
Profit attributable to ordinary shareholders/number of ordinary shares in issue
Chapter 2
Dividend yield
(Dividend per share/current share price) x 100
Chapter 2
Dividend cover
Individual basis
- Earnings per share/dividend per share
Total profit basis
- profit attributable to ordinary shareholders/dividends paid to ordinary shareholders
Chapter 2
Price earnings ratio
Current market price of share/earnings per share
Chapter 2
Net asset value
Assets attributable to ordinary shareholders/number of ordinary shares in issue
Chapter 2
Real rate of return
Interest rates minus inflation rates
Chapter 3
Capital asset pricing model equation
This formula gives you the expected return on a risky investment
= Rf + Bi(Rm - Rf)
Rf - rate of return on risk free asset
Rm - expected return of market portfolio
Bi - measure of sensitivity of investments To movements in the overall market
(Rm - Rf) - market risk premium, The access return of the market over the risk free rate
Bi(Rm - Rf) - Risk premium of the risky investment
Chapter 4
Two factor model
This also gives the expected return like the CAPM equation
=Rf + Bgdp + Bir
Risk free return plus risk premium based on the security sensitivity to all anticipated changes in GDP plus risk premium based on the securities sensitivity to an anticipated changes in interest rates
Chapter 4
Compound interest and it’s derivative compound rate of return
Compound interest = Present value(1+interest rate)^no years
Compound rate of return = (future value/present value)^1/n - 1
We essentially want to reverse this to find r
Chapter 5
Effective rate and how to use this to the the annual percentage rate AKA annual equivalent rate
(1 + interest rate/no years)^no years - 1
To get APR or AER you multiply effective rate by 100 as to depict it as a percentage to 2 decimal places
Chapter 5
Present value
Future value / (1 + interest rate)^no years
Chapter 5
Accumulation in discounting of regular savings
regular payment((1 + r)^n -1/r)
Chapter 5
Real returns from nominal returns
Real return = nominal return - inflation
Chapter 5
Diluted net asset value per share
Net assets + money subscribed by warrant holders/number of ordinary shares in issue + new shares issued to warrant holders
Chapter 7
Gearing
(Total gross assets/net assets) x 100
Essentially
All capital/all capital - borrowed capital
Chapter 7
Chargeable gain of an encashed offshore bond
(Number of days policyholder was resident in the UK/number of days the policy has run) X total gain
Essentially the time spent in the country as a fraction of time the bond ran multiplied by the total gain
Chapter 8
Holding period return
(Income revived during period + value of portfolio at end of period - value of portfolio at start of period)/ value of portfolio at start of period
Chapter 11
Money waited rate if return
= D + V1 - V0 - C / V0 + ((C x n)/12)
(Income revived during period + value at end of period - value at start or period - new money introduced during) / value at start of period + ((money introduced during period x n)/12)
Where n is the time remaining in the period as a fraction of the period I.E. added in 3rd month 9 months left so 9/12 is n
Chapter 11
Time weighted rate of return
1 + TWR = (holding period return of each sub period + 1) all added together going on for n
1 + TWR = (1 + r) x ….. (1 +rn)
Chapter 11
Sharpe ratio
return on investment – risk free return/standard deviation of the return on the investment
Chapter 11
Jensen’s alpha
Actual portfolio return – (risk free rate of return + beta of the fund or portfolio (market return-risk free rate of return))
Jensen’s alpha is essentially the real return - CAPM, which is real return - estimated return
Chapter 11
Information ratio
Portfolio or fund return – benchmark return/tracking error
Chapter 11
Benchmark return
During asset allocation you select the fund this is then used as
Fund allocation x fund allocation actual performance = benchmark return
Do this as a decimal then convert back to %
