Formulas and statistics Flashcards
Geometric Mean
Growth rates
Standard deviation is the root of:
Variance
Single Period Discount Factor is used to find:
Present value of a one off cash flow
Annuity Discount Factor is used to find:
The present value of all the cash flows (when a set number into the future)
Constant Perpetuity Discount Factor is used to:
Cash flow continue forever.
Find the present value of an irredeemable bond or pref share by:
Calculating the perpetuity discount Factor by the annual coupon payable on the bond.
Capital Asset Pricing Model
Calculate the expected return on a share based on level of systematic risk associated with that share
Beta is:
Relative systematic risk
Beta can be calculated by dividing total risk of investment times …. with market risk.
Correlation Coefficient
Correlation Coefficient is a:
Measure of the strength of the relationship between two variables. (-1 to +1)
Total risk can be defined as that investments …
Standard deviation
Total risk consists of systematic risk and unsystematic risk. How to find total risk?
By squaring systematic and unsystematic risk which gives you total variance. Total risk is then “roten av”.
Modified duration is a measure of:
The sensitivity of a price of a bond to changes in yields.
A high duration bond is more/less sensitive to changes?
More. Will typically be a bond with longer to maturity.
You find the change in bond value by:
Multiplying the change in yield by duration.