Investments Formulas Flashcards

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1
Q

Sharpe Ratio

A

Reward-to-volatility ratio; ratio of portfolio excess return to standard deviation.

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2
Q

BETA

A

Risk as a measure of volatility relative to that of the market.

  • Standard Deviation
  • Diversified
  • Systematic Risk
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3
Q

Covariance

A

Measures how one security behaves as a direct result of another.

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4
Q

Correlation

A

A measure of the relationship between two variables

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5
Q

Intrinsic value formula

A
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6
Q

Change in Bond Price

A
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7
Q

Information Ratio

A

Portfolio returns above the returns of a benchmark to the volatility of those returns. Managers ability to generate excess returns to a benchmark.

High Ratio means a manager can achieve higher returns more efficiently.

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8
Q

expected return on a portfolio

A
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9
Q

Capital Asset Pricing Model (CAPM)

A

Used to determine a theoretically appropriate required rate of return of an asset

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10
Q

Jenson’s alpha

A

Measures the performances of a portfolio manager to the market

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11
Q

Treynor Ratio

A

A measure of risk-adjusted performance that relates a portfolio’s excess returns to the portfolio’s beta.

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12
Q

Taxable Equivalent Yield (TEY)

A

Tax-Exempt Yield / (1 - Marginal Tax Rate)

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13
Q

Dividend payout ratio

A

Dividends per share / Earnings per share

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14
Q

Stock Yield

A

Dividend per share / Stock price per share

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15
Q

Margin Call Formula Shortcut

A

2/3 x Purchase price

Then look for next highest number.

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16
Q

Price Earnings Ratio

A

current market price / earnings per share

or

Earnings per share x P/E = Valuation

17
Q

Return on Equity (ROE)

A

EPS / Common Equity

Book Value / Shares outstanding = Common Equity

18
Q

Current Yield

A

Annual Coupon / Bond Price

19
Q

Property Intrinsic Value

A

Net Operating Income (NOI) / Cap Rate

20
Q

Intrinsic Value of a Call

A

Market Price - Exercise Price

21
Q

Intrinsic Value of a Put

A

Exercise Price - Market Price

22
Q

Coefficient of Variation

A

standard deviation/mean

23
Q

Weighted Portfolio Standard Deviation

A

(Weighting x Return) + (Weighting x Return)

24
Q

Average Cost Per Share Basis

A
25
Q
A
26
Q

Correlation

A

A measure of the relationship between two variables

27
Q

Monetrary Policy

A

FED

  1. Reserve requirement
  2. Discount Rate
  3. Open market operations
  4. Repo or reverse repo
  5. Margin
28
Q
A
29
Q

Sam buys 100 shares of stock at $50/share. The stock has been paying a $0.25 quarterly dividend. The company earnings increase by 10%, and the company declares that the dividend will increase by 5% for the year. Sam sells the stock at $53. What is the total return if he holds the stock one year?

A

HPR = ($53 + $1.05 - $50) / $50 = 8.1%

The $0.25 dividend increases by 5% to $0.2625. The yearly dividend is $0.2625 x 4 = $1.05. You can calculate per share.

30
Q

A client uses a 5-year time horizon to buy stocks that are volatile. He has a 12% required rate of return. If the stock is first up 10% (1st year), up 30% (2nd year), no change (3rd year), down 15% (4th year), up 20% (5th year), did he make his required rate of return over the 5 years?

A

1.10 x 1.30 x 1 x 0.85 x 1.20 = 1.4586

Calculator Keystrokes: 1.4586 FV, 1 ± PV, 5N

Solve for I: 7.84%

31
Q

ROE

A

EPS / Book Value Per Share

32
Q
A