Formulas and statistics

Question 1

Geometric Mean

Answer 1

Growth rates

Question 2

Standard deviation is the root of:

Answer 2

Variance

Question 3

Single Period Discount Factor is used to find:

Answer 3

Present value of a one off cash flow

Question 4

Annuity Discount Factor is used to find:

Answer 4

The present value of all the cash flows (when a set number into the future)

Question 5

Constant Perpetuity Discount Factor is used to:

Answer 5

Cash flow continue forever.

Question 6

Find the present value of an irredeemable bond or pref share by:

Answer 6

Calculating the perpetuity discount Factor by the annual coupon payable on the bond.

Question 7

Capital Asset Pricing Model

Answer 7

Calculate the expected return on a share based on level of systematic risk associated with that share

Question 8

Beta is:

Answer 8

Relative systematic risk

Question 9

Beta can be calculated by dividing total risk of investment times …. with market risk.

Answer 9

Correlation Coefficient

Question 10

Correlation Coefficient is a:

Answer 10

Measure of the strength of the relationship between two variables. (-1 to +1)

Question 11

Total risk can be defined as that investments …

Answer 11

Standard deviation

Question 12

Total risk consists of systematic risk and unsystematic risk. How to find total risk?

Answer 12

By squaring systematic and unsystematic risk which gives you total variance. Total risk is then “roten av”.

Question 13

Modified duration is a measure of:

Answer 13

The sensitivity of a price of a bond to changes in yields.

Question 14

A high duration bond is more/less sensitive to changes?

Answer 14

More. Will typically be a bond with longer to maturity.

Question 15

You find the change in bond value by:

Answer 15

Multiplying the change in yield by duration.

Question 16

Constant Dividend Discount Model:

Answer 16

Gives the value on equity based on dividend and required rate of return.

Question 17

Growing Dividend Discount Model (Gordon’s):

Answer 17

Value of equity shares which are expected to pay a growing dividend into the future.

Question 18

Price/Earnings Ratio (P/E):

Answer 18

Ex Dividend share price / earnings per share

Question 19

Arithmetic mean

Answer 19

Standard average calculation

Question 20

Median is

Answer 20

Value of the mid-point in an ordered list of data

Question 21

Mode is

Answer 21

The most frequent data - Normal Distribution

Question 22

Geometric means is used as a…

Answer 22

Measure when considering growth or inflation which compounds each year.

Question 23

Dispersion (how broadly spread a range of values are from the central point) can be a measure of…

Answer 23

Risk

Question 24

The dispersion measures that can be used if return has been found by arithmetic mean are…

Answer 24

Standard variation and Variance

Question 25

The greater the divergence of the observed values from the arithmetic mean...

Answer 25

The reader the standard deviation (risk). High SD = high risk

Question 26

Variance is

Answer 26

Standard deviation^2

Question 27

The interquartile range measures the range of the mid 50% items. How do you calculate it?

Answer 27

Divide in 4 quartiles. 3 calculations giving the top of the 1st quartile, median and top of 3rd quartile. Quartile x (n+1) / 4 3rd-1st=interquartile range

Question 28

68.26% of all possible returns spans 1 standard deviation. 95% of all possible returns spans...

Answer 28

1.96 standard deviations from the mean (expected return)

Question 29

The arithmetic index is the most appropriate alternative for portfolio perf management because...

Answer 29

Returns on a portfolio will be the sum of the returns of the individual stocks within the portfolio.

Question 30

"The market value of a security is the present value of the future expected receipts...

Answer 30

...discounted at the investors' required rate of return."

Question 31

The IRR is the rate of interest that...

Answer 31

Discount the investment flows to a net present value of zero.

Question 32

The IRR assumes that surplus funds can be reinvested at a return...

Answer 32

Equal to the IRR.