Formulas To Memorize

Question 1

Current yield

Answer 1

Annual interest in dollars / bonds market price

Question 2

Property’s intrinsic value

Answer 2

Net operating income / Capitalization rate

Question 3

Intrinsic value of a call

Answer 3

“COME”

Call option = market - exercise

Question 4

Intrinsic value of a put

Answer 4

POEM (Please Excuse Mom)

Put Option = Exercise - Market

Question 5

Taxable Equivalent Yield

Answer 5

TEY = tax-exempt yield / (1-tax you don’t pay)

????

Question 6

Tax exempt yield

Answer 6

Taxable yield x (1-tax you don’t pay)

????

Question 7

Return on equity (ROE)

Answer 7

Earnings available for common (EPS) / common equity (net worth or book value)

Question 8

Dividend payout ratio

Answer 8

Common dividends paid / earnings available for common (EPS)

Question 9

Margin call formula

Answer 9

{(1 - initial margin %) / (1 - maintenance margin %) }

X purchase price of stock

Question 10

P/E ratio

Answer 10

Price / earnings ratio

Or

Current market price / earnings

Question 11

Coefficient of variation (CV)

Answer 11

Standard deviation / avg return

Question 12

Convertible Bond value

Answer 12

(Par/Conversion price) x current market price of the underlying stock

Question 13

Covariance formula

Answer 13

COV = P O O