IMC Pt 2

Question 1

CAPM

Answer 1

Rf + B(Rm - Rf)

Question 2

PV annuity

Answer 2

CF + (1 - (1 + r)^-n) / r

Question 3

Consumption function

Answer 3

C = a + bY

Question 4

Gordon Growth Model

Answer 4

Ex-dividend share price = (D0 x (1 + g)) / (r + g)

Question 5

Modified duration

Answer 5

Macaulay duration / (1 + yield)

Question 6

Geometric mean

Answer 6

[(1+r1)(1+r2)…(1+rn)]^1/n

Question 7

Correlation coefficent

Answer 7

r = covariance(x,y)/(s.d.x * s.d.y)

Question 8

Simple arithmetic index

Answer 8

([A + B]/start value) * base

Question 9

Market value weighted index

Answer 9

([MVA + MVB]/start value) * base

Question 10

Effective Annual Rate (EAR)

Answer 10

[(1+r)^n - 1] * 100

Question 11

Future Value

Answer 11

PV (1+r)^n

Question 12

Present Value

Answer 12

FV/(1+r)^n

Question 13

Perpetuity PV

Answer 13

CF / (1/r)

Question 14

Internal Rate of Return (IRR)

Answer 14

PV(inflows) - PV(outflows) = 0

Question 15

Price Elasticity of Demand

Answer 15

% change quantity / % change price

Elastic > 1
Inelastic < 1
Shift ALONG the demand curve

Question 16

Cross Elasticity of Demand

Answer 16

% change quantity X / % change quantity Y

+ive = substitute goods
-ive = complementary goods
Shift IN the demand curve

Question 17

Income Elasticity of Demand

Answer 17

% change quantity / % change 
0 > Normal good < 1
1 > Luxury good
Inferior good < 1
Giffen good: Price rise = demand up
Shift IN the demand curve

Question 18

Economic (Supernormal) profit

Answer 18

Accounting profit - cost of sales - all other opportunity costs (owners time, next best use of capital etc.)

Question 19

Positive skew

Answer 19

Mean > Median > Mode