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SIE & 7TO > Formulas > Flashcards

Formulas Flashcards

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SIE Exam flashcards
1
Q

Stock Dividends-
-SD factor
-New total shares
-New price

A

SD factor =SD (decimal) + 1
New shares= Old shares x SD factor
New price= Old price/ SD factor

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2
Q

Stock split (ex A:B, like 2:1or 3:2)
-SSF stock split factor
-New # of shares
-New price per share

A

SSF=A/B
New shares= Old shares X SSF
New price= Old price/SSF

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3
Q

Settlement for common stock

A

T (trade) + 2 bz days
Ex: trade agreement on Monday, settlement (change of record owner, delivery of funds) Wednesday

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4
Q

PE ratio and EPS

A

Price to earnings ratio=
market price/ earnings per share

High ratio- overpriced, typical of growth company

Low ratio- underpriced, typical of value company

*Note: stock splits affect earnings per share EPS. Stock split is legal manipulation of the price.
EPS= net income/ outstanding shares

Recap:
PE= market price/EPS

EPS= market price/ PE

EPS=earnings (common)/
#common shares outstanding
or
EPS= net income- preferred div/
# shares outstanding

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5
Q

Preferred stock- Par? Payout?

Current yield vs.
Dividend rate

A

CY= annual dividends/market price
(Sloppy way to determine investor’s rate of return)
DR= annual dividends/par
Assume par $100, semiannual dividends

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6
Q

Bond trading with accrued interest vs trading flat? Interest paid based on what time frame?

Calculate accrued interest-
US government bonds
Muni & corporate bonds?

A

Trade flat= without accrued interest (zero coupon or bond trade SETTLES on interest payment date)
Interest paid is on prior 6 mo, so accrued amount up to settlement belongs to seller. Time from last interest pmt dt through day BEFORE settlement/record dt

Treasuries- actual/365
All others- 30/360

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7
Q

Bond seesaw-

Relationship between market price and interest rates?
Between price and yield?
Between rate and yield?

What is sold at discount, premium, or par?

A

$———————N—CY–YTM–YTC–%

Market price Interest rate

Inverse relationship

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8
Q

Convertible bonds

Conversion ratio CR
Conversion price CP

What is typical par for bonds?

How to find conversion cost per share, and what is it called?

A

Conv ratio= par/ conversion price
# shares of stock thst are received if a bond is converted

Conv price= par/ conversion ratio
used to to calculate CR

$1000

SPP (stock parity price)=
Bond market price / conversion ratio

*If mkt price of common stock is HIGHER than conversion cost per share, investor earns cap gain

BPP(bond parity price)=
Common stock price x conv ratio

*If bond market price is BELOW BPP, investor should buy the bond and immediately convert to common stock. Earn cap gain on sale on common stock.

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9
Q

Settlement of US government bonds vs Muni and corporate?

A

T(trade date) + 1bz day (record date/settlement)
Settle through Federal Funds system
(Government securities initially offered at auction, then trade only OTC. No exchange activity)
Note: options settlement T+1 also

T+2
Settle through clearinghouses

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10
Q

Sales charges-applies to what securities?

Based on what?

Highest possible sales charge?

A

Redeemables/primary market/prospectus
Ex: mutual fund, UIT

% of POP (pub offering price)

Max 8.5% (or 7.25% if 12b1 fees at max 1%- max distribution. 75%, max service. 25%)

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11
Q

NAV=

Sales charge%=

A

NAV= assets- liabilities/# outstanding shares

Overall value of a fund on a per share basis. Trades on mutual funds only once a day using forward pricing, always based on next available NAV

SC %= POP-NAV/POP

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12
Q

Find POP if sales charge is in:
Percent

Dollars

A

POP= NAV/100%-SC%

POP= NAV + SC

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13
Q

Total Return (mutual funds)

A

All gains and or losses/original cost

(Includes paper/unrealized gains)

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14
Q

Options- formula for premium

A

Premium = intrinsic value+ time value

**“call up, put down”

With call option, intrinsic value/ITM is present when market price is ABOVE strike price

With put option, intrinsic value/ITM is present when market price is BELOW strike price

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15
Q

Options contract and stock split- what’s the new position (#contracts, # shares per contract, strike price) if:
(A:B split)

Even stock split (ratio ends in 1)

Uneven stock split

Reverse stock split

A

Find SSF= A/B

Contract (100 shares) X SSF=new #shares**

Strike price/SSF= new strike price

**Even split- adjust # of contracts (at 100 shares each)

**Uneven split- keep same # contracts BUT adjust # of shares per contract

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16
Q

Options contracts and dividends- what is new contract if:

Stock dividends

Regular cash dividends

Special cash dividends

A

Stock dividend-
SSF is dividends rate as a decimal (ex 10% is 1.10)

Start at 100 shares per contract.
Keep same # of contracts.

Adjust #shares per contract =
# shares in contract × SSF

Adjust strike price= strikeprice/SSF

Cash dividends-
No change

Special cash dividend-
STRIKE price reduced by amount of the dividend.

No change to # contracts or # shares per contract

17
Q

Long call-
What does this mean?
Market sentiment?

Max gain?
Max loss?
Breakeven?

A

Hold/own the right to buy
Bullish 🐄 (think market is going up)

MG= unlimited
ML= premium (same for all LONG option positions, regardless of what option action is)
B/E= strike + premium (same for all CALL options, regardless of ownership)

“Call up”
Call is +

18
Q

Long put-
What does this mean?
Market sentiment?

Max gain?
Max loss?
Breakeven?

A

Own/hold the right to sell (put it on someone else)
Bearish 🐻- think market is dropping

MG= strike-premium
ML= premium (same for all LONG positions,regardless of type of option)
B/E= strike- premium (same for all PUTs, regardless of ownership)

“Put down”
Put is -

19
Q

Short call-
What does it mean?
Market sentiment?

Max gain?
Max loss?
Breakeven?

Naked! Cover the short with?

A

Obligation/writer to sell (someone else can call it in)
Bearish 🐻

MG= premium (same for all SHORTs regardless of option action)
ML= unlimited 😨
B/E= strike + premium (same for all CALLs, regardless of ownership)

Short call covered with:
Long shares
Long call
Rights or warrants
Convertible securities

“Call up”
Call is +

20
Q

Short put-
What does it mean?
Market sentiment?

Max gain?
Max loss?
Breakeven?

Naked!! Cover short put with?

A

Obligation/writer to buy (someone can put it on you)
Bullish 🐄 - think market is going up

MG= premium (same for all SHORTs, regardless of option action)
ML= strike- premium
B/E= strike- premium (same for all PUTs, regardless of ownership)

Short put covered with:
Short shares
Long put
Cash

“Put down”
Put is -

21
Q

Comparing tax free muni bonds to fully taxable corporate bonds

A

TFEY tax free equivalent yield=
Corporate yield X (100%-tax bracket%)
To compare to muni bond

TEY tax equivalent yield =

Muni bond yield/ (100%- tax bracket)
To compare to the (higher) corporate bond rate

Note- refers to Federal tax only. If savings on State income tax also apply, TEY will be higher bc you’re getting a two pronged tax exemption

22
Q

Settlement for US government securities and options

A

T+1

23
Q

Value of a right

Trading with the right

Trading without the right

A

Cum rights trade prior to ex date

Mkt price - subscription price /
rights needed per new share +1

ex rights trading on or after ex date

Market price - subscription price / rights needed per new share

24
Q

Debt coverage ratio

A

Used when analyzing REVENUE Municipal bonds

Comparing annual available revenues (available to pay debt) to annual debt service

Coverage = available revenues / annual debt svc requirement

Higher numbers are better

debt service - current principal & interest due plus any sinking fund obligation

25
Q

DPP- cost basis (formula)- when is it adjusted?

(Annual deductions of expenses can’t exceed your adjusted basis. Can carry losses forward if they exceed basis)

DPP risks- p.326-7

A

Investment in partnership + share of Recourse debt (+ share of REAL ESTATE Non-recourse debt) - cash or property distributions

Adjusted annually

Risks:
Liquidity
Legislative
Leverage
Audit
Depreciation recapture

26
Q

Capital gain or capital loss formula

Options contracts- gain/loss & taxes
-Expire
-Closing transaction
-Exercise

A

Cap gain/loss= proceeds - basis

If you buy a security & have an option, basis is adjusted to factor in premium for option

If you have an option and sell a security, proceeds are adjusted to factor income or loss from contract premium

Expire?
Buyer = STCL
Seller= STCG or- if LEAP help more than 12mo, LTCG

Closing transaction- cap gain or loss

Exercise- taxes deferred until stock position is closed.
Sell the stock? Adjust proceeds
Buy the stock? Adjust basis

27
Q

After tax return

A

After tax return = taxable investment return / 100- tax rate

(Recall TFEY in muni & Corp bonds)

28
Q

Current ratio

Combined with working capital for measure of liquidity

Quick asset ratio (acid test ratio) aka quick ratio

A

WC= current assets- current liabilities

Note: declaration a cash dividend affects WC bc it becomes a current liability (dividends payable).
Paying a previously declared cash dividend does not, bc you’re reducing BOTH cash (current asset) and dividends payable (current liability)

CR= current assets / current liabilities
Higher ratio means more liquid

QAR= (curr assets- inventory)/ current liabilities

29
Q

Book value per share

A

Liquidation value of company, on a per share basis

Leaves out intangibles bc they may not be worth what’s listed on the books

Book value per share=
Tangible assets - liabilities - par value of preferred stock /
#outstanding shares of common stock

30
Q

Dividend payout ratio

A

Amount of earnings that got paid out to shareholders

Div payout ratio=
annual divs (per common share)/
EPS

Utility companies have v high ratio, followed by well established companies

Growth companies tend to retain their earnings

31
Q

Debt service coverage ratio

A

Measures ability to pay debts

Debt service coverage ratio=
Net operating income/
Debt service requirements

Net operating income =
Gross income- operating expenses

32
Q

Margin accounts

Long margin acc

Short margin acc

Restricted account

A

LMV-DR= EQ

Long market value (MV of securitiesheld) - debit register (amount $$ borrowed) = equity in securities held by customer

CR- SMV=EQ
Credit register (amount $ customer got from short sale)- Short market value (MV of securities customer will need to buy back & return to lender)= equity , or net worth of investor’s margin acc

equity %=
net equity($)/ net position (LMV or SMV)

Restricted when equity <50%. If restricted, half of sales proceeds must go to pay down borrowed funds.
MINIMUM to avoid firm selling off your stuff?
25% long
30% short

Unrestricted (50%+ equity balance maintained)? Can sell securities and withdraw cash

33
Q

Market value at maintenance

Short market value at maintenance

A

How low can LMV fall before a maintenance call is issued)

Minimum LMV= DR/ 0.75

How high can SMV go before a maintenance call is issued?

Maximum SMV= CR/1.3

SIE & 7TO (6 decks)

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