Investment Formulas (MUST MEMORIZE) Flashcards
What is Current Yield?
Example: If a $1,000 bond with a 10% coupon is now selling for $900, what is its current yield?
Current yield =
Annual interest in dollars /
bond’s market price
Example: $100 (coupon) / $900 (FMV of bond) = 11.11%
How do you calculate property’s intrinsic value?
Example: A property has NOI of $40,800 and a cap rate of 10%.
Net Operating Income (NOI) /
Capitalization Rate
40,800 / .1 = 408,000
What is the intrinsic value of a call option?
Example:
The market price for Call A is $60, and the exercise price is $50.
The market price for Call B is $49, and the exercise price is $50.
Call Intrinsic Value = Market Price - Exercise Price
Example A: IV = $60 - $50 = $10
Example B: IV = $49 - $50 = $0
(IV cannot be negative.)
What is the intrinsic value of a put option?
Example: The market price for Put A is $25, and the exercise price is $30.
Example: The market price for Put B is $35, and the exercise price is $30.
Put Intrinsic Value = Exercise Price - Market Price
Example A: IV = $30 - $25 = $5
Example B: IV = $30 - $35 = $0
(IV cannot be negative.)
How do you calculate tax-exempt yield?
Example: Susan’s marginal bracket is 15%. She is considering either a corporate bond that pays 7% or a tax-exempt municipal bond paying 5.5%. Which bond should she buy?
Tax exempt yield = Taxable yield * (1 - Marginal Tax Rate)
Example: 7 * (1 - 0.15) = 5.95%
How do you calculate Return on Equity?
Example:
You are given the following information for Corporation X.
Book Value $180,000
Shares Outstanding 6,000,000
Dividend paid $1.50 per share
EPS $3.00
Market price per share $50
What is the return on common equity (ROE)?
ROE = EPS / Book Value
Example:
3.00 / 30* = 10%
*Book value per share is $180,000,000 / 6,000,000 = $30 / share
How do you calculate Dividend Payout Ratio?
Example:
You are given the following information for Corporation X.
Book Value $180,000
Shares Outstanding 6,000,000
Dividend paid $1.50 per share
EPS $3.00
Market price per share $50
Dividend Payout Ratio = Common Dividends Paid / EPS
1.5 / 3 = 50%
How do you calculate Stock Yield?
Example:
You are given the following information for Corporation X.
Book Value $180,000
Shares Outstanding 6,000,000
Dividend paid $1.50 per share
EPS $3.00
Market price per share $50
Stock Yield = Dividend per share / Stock Price per share
Dividend = 1.5 per share
Stock price = 50 per share
1.5 / 50 = 3%
How do you calculate Margin Call?
Example:
If an investor purchases 200 share at $150 per share, at what price can he/she expect a margin call if the minimum maintenance is 25%?
Margin call = (1 - initial margin percentage / 1 - maintenance margin percentage) * purchase price of stock
Example:
(1 - 0.5 ) / (1 - 0.25) * 150 = $100
