Math Flashcards
3 step Education planning
child is 10
child starts at 18
college will cost $20,000 IN TODAY’S DOLLARS
parent can earn 9% after tax
college costs will increase by 6% annually (inflation
1) End mode PV = 20,000 N = 8 I = 6 FV ? = -31,876.96 2) Beg Mode PMT = 31,876.96 N= 4 I = 2.8302 PV = ? 122,339.66 3) PV or PMT ? what is being asked? also could be beg or end mode, the question must state it FV = 122,339.66 N = 8 I = 9% Lump sum = PV = 61,398.15 Payment each yr = PMT = 10,177.13 beg or 11,093.07 end
Geometric Mean
step 1) add 1 to each return step 2) multiply 1.5X.5x.93 this is my FV PV = -1 N= # of years calculate I
Lottery winner
10 million payout, net 6.04 mi. 39.6 taxes or
600,000 for 20 yrs 25% lost to taxes with 4% interest earned
600,000 X .75 =450,000 = PMT
20 = N
4= I
PV? 6,427,789
not a TMV but smells like it, maybe a life insurance Q like this one
if John dies, he wants his wife to have yearly income of $36,000 that will increase with inflation (4%). He can realize a net return of 7%. Use a capital retention calculation to determine how much insurance he should purchase
36,000/ 3% (think easy 7-4) = 1,200,000 then + $36,000. answer is 1,236,000
when no number of years = capital retention problem.
HPR- keep it simple
no margin vs margin
no margin 20,000 + 3000-10,000 / 10,000 = 1.3 = 130%
margin 15,000 - (5000+600) - 5000 / 5000 = 4400/5000 = 88%
Which bond treasury, corp, out of state muni, or instate muni? 28% TB Treasury = 7% Corp Bond = 7.8 Out of state Muni= 6.4% In state muni = 5.2%
Treasury = 7% (1-.28) = 5.04% fed no state
Corp bond = 7.8%(1-.28+.06) = 5.148 fed and state
out of state muni = 6.4% (1-.06) = 6.01 state tax
in state muni = 5.2
answer out of state muni best
ROE = EPS / Book value per share
What is this co's ROE BV = 100 Million Shares outstanding = 5 Million Dividend paid per share = .4 EPS = $4.80
EPS = 4.80 / 100/5 = 4.8/20 = 24%
What is the approximate change in price of a $1000 bond when interest rate decline by .75%, the YTM is 6.75%, and the bond duration is 10 years
-D ( change in rate / 1+ YTM
-10 ( -.0075 / 1+ .0675 = 7%
Dividend growth
Stable Growth Corp is paying $2.50 per share in dividends and investors expect dividends to grow at a rate of 7% a year for the furture. If clients required rate is 10% a year, what is the estimated price of Stable?
2.50 (1 +.07) / .1 -.07 = 89.17 = Price
no dividends… no worries = use P/E
Current market price = earnings X PE Ratio
CMP = $3 in earnings X 15 = $45
Terms
R2 is the coefficient of determination. It is the square of correlation coefficient.
if R2 is the % movement of the S&P 500.
High R2 = diversified, look for highest alpha if no alpha use Trenor.
If low R2, look for the highest Sharpe low is less than 60.
What amount if any of accumulated earning tax is due? This is from corporations that have accumulated earnings and haven’t given as divided
Income = 200,000
tax paid - 75,000
div paid - 25,000
-----------
100,000
so 200,000 + 100,000 = 300,000
over 250,00 need to pay
50,000 x .15 = 7500
Mortgage How much interest will paid on the life of the loan?
100,000 = pV 7.5% = I 15 = G-N (moly pmts) Pmt= 927.01 927.01 X 12 X 15 = 166,862 -100K = 66,862
mortg
Mort #2 How much interest was paid for the 1st 10 years of a 30 yrs mort 80,000 at 9.75%
80,000 = PV
30 = G-N (12 moly pmt)
9.75 = I
Pmt =
now press the AMT, #P, enter 120 for # of payments, INT = 74,941
how much int,
what is the principal
what is the balance
HPR, what is they don’t give the price of the bond? If they give annual interest and current yield divide the 2. = current price
ex
joe buys a bond for 900, with 5% coupon. sold bond after 1 year when it paying a current yield of 4%. What is Joes HPR.
$1000 par bond yielding 5% = $50. 50/.04 = $1250 what he sold bond for.
(1250+ 50) - 900 / 900 = 44.4%
