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.
Constant Dividend Discount Model:
Gives the value on equity based on dividend and required rate of return.
Growing Dividend Discount Model (Gordon’s):
Value of equity shares which are expected to pay a growing dividend into the future.
Price/Earnings Ratio (P/E):
Ex Dividend share price / earnings per share
Arithmetic mean
Standard average calculation
Median is
Value of the mid-point in an ordered list of data
Mode is
The most frequent data - Normal Distribution
Geometric means is used as a…
Measure when considering growth or inflation which compounds each year.
Dispersion (how broadly spread a range of values are from the central point) can be a measure of…
Risk
The dispersion measures that can be used if return has been found by arithmetic mean are…
Standard variation and Variance
The greater the divergence of the observed values from the arithmetic mean…
The reader the standard deviation (risk).
High SD = high risk
Variance is
Standard deviation^2
The interquartile range measures the range of the mid 50% items. How do you calculate it?
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
68.26% of all possible returns spans 1 standard deviation. 95% of all possible returns spans…
1.96 standard deviations from the mean (expected return)
The arithmetic index is the most appropriate alternative for portfolio perf management because…
Returns on a portfolio will be the sum of the returns of the individual stocks within the portfolio.
“The market value of a security is the present value of the future expected receipts…
…discounted at the investors’ required rate of return.”
The IRR is the rate of interest that…
Discount the investment flows to a net present value of zero.
The IRR assumes that surplus funds can be reinvested at a return…
Equal to the IRR.
