Investment Formula with Descriptions Flashcards by Alex Hardy

Q

Dividend Discount Model Formula (DDM) or Constant Growth Model

A

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Q

Required Rate of Return Formula

A

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Q

Covariance

A

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Q

Standard Deviation of Two Assets
(based on weighting)

A

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Q

Beta

A

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Q

Required (or Expected) Rate of Return
(Security Market Line - or SML)

A

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Q

Alpha (Jensen)

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Q

Treynor Ratio

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Q

Change in Price of a Bond

A

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Q

Tax-Equivalent Yield

A

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Q

Sharpe Ratio

A

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Q

D1 Rewrite

A

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Q

g

A

Dividend Growth Rate

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Q

P

A

Price of Stock

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Q

r

A

Required Rate of Return

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Q

cov

A

Covariance

Q

A

correlation coefficient (this is the Greek letter “rho”)

Q

A

standard deviation of a stock (this is the Greek letter “sigma”

Q

A

next year’s dividend

Q

A

standard deviation of the portfolio

Q

A

Beta (risk) of stock “I”

Q

A

the standard deviation of the market

Q

A

correlation coefficient between stock “I” and the market

Q

A

investor’s required return (or expected return)

Q

A

risk-free rate (could be given as the 3 month T-bill rate)

Q

A

return of the market

Q

A

the market premium

Q

A

the stock premium

Q

A

alpha of the portfolio (this measures how much value the portfolio manager has added or subtracted in relation to the expected return of the portfolio)

Q

A

return of the portfolio (i.e the portfolio manager’s return)

Q

A

Treynor Ratio

Q

A

the beta (or risk) of portfolio “p”

Q

A

percentage change in the price of a bond

Q

D

A

duration of the bond

Q

A

the change in interest rate

Q

y

A

yield to maturity (YTM)

Q

A

Sharpe Ratio