IAD Questions - Equations Flashcards

1
Q

Annual Effective Rate (AER)

(Eg. Annual rate is 7% and compounded semi-annually)

A

{Rate / Period}, +1, ^Periods

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2
Q

Flat Yield

(Eg. Treasury 4% with 4yrs left to maturity and market value of £103.50)

A

Rate / Value

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3
Q

Gross Redemption Yield (GRY)

(Eg. 9yr 3.5% bond at £107)

A

Value - Par/Period/Value x 100

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4
Q

Real Returns

(Eg. Savings account paying 5% nominal and assuming 2.5% inflation)

A

1+Nominal / 1+Inflation

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5
Q

CAPM

(Eg. Market average is 10.5%, risk-free is 2.4% and Beta of portfolio is 1.3)

A

RiskFree + (MarketRate - RiskFree)Beta

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6
Q

Time-weighted rate of return

A

(End1/Start1) x (End2/Start2) -1 x100

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7
Q

Present Value of Perpetuity

(Eg. £1500 paid annually, assuming 7% interest)

A

Annual payment / Rate

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8
Q

Present value of Annuity

(Eg. 3yr annuity of £170pa, assuming 5% interest rate)

A

Annual payment x 1/Rate x 1-1/1+Rate^Period

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9
Q

Net Asset Value (NAV)

(Eg. Assets of £15m, liabilities of £6m, 2m shares in issue)

A

Assets - Debt / Total shares

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10
Q

Future Value

(Eg. £2000 earning 10%pa, what’s worth in 3yrs)

A

Deposit x 1+rate ^ period

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11
Q

Present Value

(Eg. £75k received in 8yrs, interest of 8%)

A

Future Value/ 1+rate ^ period

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12
Q

Earnings Per Share (EPS)

A

Profits / shares

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13
Q

Dividend Yield

A

Dividend per share / price

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14
Q

Price/Earnings Ratio

(Eg. Profits £4m, 2m shares, share price £9.50)

A

EPS / Price

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15
Q

Dividend Cover

A

EPS / Dividend per share

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16
Q

Gearing Ratio

(Eg. Total debt £8m of which £2.5m due within 1yr, equity of £4m)

A

Long-term debt / Debt + Equity

17
Q

What are the CAPM assumptions?

A

All participants can borrow and lend at the risk-free rate

No taxes or transaction costs

All participants have the same expectations

18
Q

What is the purpose of the Gearing Ratio?

A

Measures financial risk for shareholders

19
Q

What is the purpose of the Price/Earnings Ratio?

A

Valuation/Checking the current price of the company. (Ie how long to get investment back)

20
Q

What is the purpose of the Dividend Cover?

A

How sustainable is the current dividend

21
Q

What is the purpose of the Earnings Per Share calculation?

A

Checks profitability of the company

22
Q

What is the purpose of the Time-weighted Rate of Return calculation?

A

Works out return over period to analyse performance, taking into account deposits & withdrawals (that would distort the calculation)

23
Q

Explain quarter up calculation for IHT purposes

(Eg. Closing price is 300-304)

A

Calculate difference between Bid/Offer at CLOSE

Divide this by quarter

Add to the bid

24
Q

Holding Period Return

A

(ValEnd - ValStart) + income / ValStart