Formulas Flashcards
Bond Yields:
Running Yield / Flat Yield / Interest Yield
Coupon / Clean Price x 100
Yield the investor will receive taking into account the purchase price & the coupon.
Bond Yields:
Gross Redemption Yield
Flat Yield +/- % gain/loss per year at maturity
Takes into account not only the income from the bond but also the price it will ultimately be redeemed for.
Example:
ABC corporate bond 5% 2030. £96 per £100 nominal - 7 years to maturity.
Profit @ maturity = £100 - £96 = £4
Profit per year = £4 / 7 years = £0.57
Profit per year as % of current price =
£0.57/£96= 0.0059 x 100 = 0.59%
Add 0.59% (% profit @ maturity) to flat yield to get gross redemption yield.
Earnings Per Share
Profit to Ordinary Shareholders / Number of Ordinary Shareholders in Issue
Liquidity Ratio
Businesses ability to meet their debts.
Current Assets - Stock / Current Liabilities
Gearing
Simply the measure of borrowing in a business
Long Term Debt / Shareholder Funds
Dividend Yield
Essentially return on a share. Measures the dividend as a percentage return on the current share price. Good for comparing yields against other investments.
Dividend per share / current share price x 100
Dividend per share
Dividend / number of ordinary shares in issue x 100
Dividend Cover
Earnings per share / Dividend per share
Price / Earnings Ratio
Current market share price / earnings per share
Investment Ratio:
Net Asset Value (NAV)
Assets / Shares
Net assets attributed to ordinary shareholders / number of ordinary shares in issue
Remember: that net assets attributable to ordinary shareholders is calculated as the total capital minus secured & unsecured loans & preference shares
Cash Formula: AER
NB: AER should only be slightly higher than quoted rate
The annual equivalent rate on compounding interest.
R = quote rate of interest
N = number of periods compounding
Example:
ABC Bank have an account that pays a quoted nominal rate of 2% paid quarterly.
- R) Turn % into decimal - 2% become 0.02
- N = 4 (quarterly)
- R/N + 1 ….so…. 0.02/4 + 1 = 1.005
- then it’s 1.005 to the power of N so (1.005)^4 = 1.02015
- -1 so 1.02015 - 1 = 0.02015
6 * 100 to get AER so AER = 2.015%
What is the golden rule for calculating yield?
Annual income / current price or current valuation
Bond Yield: Net Redemption Yield.
Only difference between net and gross redemption yield is net redemption yield deducts tax from flat yield before continuing with rest of gross calc.
So so this by deducting tax from the flat yield and do this by * left over…
I.e higher rate tax payer would be
(Flat Yield x 0.6)
Basic
(Flat Yield x 0.8)
Additional
(Flat Yield x 0.55)
What is the golden rule for yield?
It is annual income / price or value
Property:
Headline Gross Yield
Gross Rent / Market Price x 100%
Gives you a rough idea
