Mega Terms 3 Flashcards
Payback period
Full years until recovery + ((unrecovered cost at the beginning of the last year)/(cash flow during the last year))
Profitability Index
PV of future cash flows/CF0 = 1 + NPV/CF0
WACC
wd(kd(1-t)) + wps(kps) + wce(kce)
Cost of preferred stock
kps = Dps/P
Cost of Common Equity
kce = D1/Po + g
Cost of common equity beta vs. bond yield
Rf + B(E(Rm)-Rf) vs. current market yield on firm’s long term debt + risk premium
Breakpoint
amount of capital at which the component’s cost of capital changes/Weight of the component in the capital structure
Degree of operating leverage
Q(P-V)/Q(P-V)-F
Degree of Financial Leverage
EBIT/EBIT-I
Degree of total leverage
DOL x DFL
Unlevered asset beta
Bequity{1/(1+[(1-t)D/E])}
Breakeven quantity of sales
(fixed operating costs + fixed financing costs)/(price - variable cost per unit)
Operating Breakeven quantity of sales
Fixed operating costs/(price-variable cost per unit)
Operating Cycle
Average days of inventory + average days of receivables
Discount basis yield
((FV-P)/FV)*(360/days)
Money Market yield
(FV-P)/P (360/days)
Bond equivalent yield
(FV-Price)/P (365/days to maturity) = HPY (365/days)
Cost of trade credit
(1+(% discount/(1-% discount))^365/days past discount -1
Margin call price
P0((1-initial margin)/(1-maintenance margin))
Price-weighted index
Sum of stock prices/number of stocks in index adjust for splits
Market cap-weighted index
Sum(Pricetoday)(number of shares outstanding)/Sum(Pricebase year)(number of shares outstanding)) x base year index value
Preferred stock valuation model
Po = Dp/kp
One-period stock valuation model
Po = D1/(1+ke) + P1/(1+ke)
Infinite period model - constant growth model
Po = D1/ke-g = D0 x (1+g)/ke-g
Multistage model
Po = D1/(1+ke) + … + Dn+1/ke-gc + Pn/(1+ke)^n
Earnings Multiplier
Po/E1 = (D1/E1)/(k-g)
Expected/sustainable Growth Rate
g = retention rate * ROE where retention rate = (1 - dividend payout)
Trailing P/E
Market price per share/EPS over previous 12 months
Leading P/E
Market price per share/forecast EPS over next 12 months
P/B ratio
Market value of equity/book value of equity = Market price per share/book value per share
Book value of equity
Common shareholder’s equity
P/S ratio
Market value of equity/total sales
P/CF ratio
market value of equity/cash flow = market price per share/cash flow per share
EV
Market value of cs and ps + market value of debt - cash and short-term investments
Price of annual coupon
coupon + principal/(1+YTM)^N
ROE
Net Income/((BVt+ BVt-1)/2)
no-arbitrage forward price
F0(T) = S0(1+Rf)^T
Value of forward at time t
Vt(T) = St + PVt(cost) - PVt(benefit) - (F0(T)/((1+Rf)^T-t))
Put-call parity
c + X/(1+Rf)^T = S + p or Call = Put + Stock - PV(X)
Collateral yield
return on T-bills posted at margin
Roll yield
Roll yield is the amount of return generated in the futures market after an investor rolls a short-term contract into a longer-term contract and profits from the convergence of the futures price toward a higher spot or cash price.
Correlation of two stocks
p1,2 = Cov1,2/(stdev1*stdev2)
Equation of the CML
E(Rp) = Rf + (E(Rm)-Rf)(stedevp/stdevM)
Equation of Beta
B1 = Covi,mkt/stdev^2mkt = corri,mkt(stdevi/stdevmkt)
CAPM
E(Ri) = Rf + Bi[E(Rmkt)-Rf}
Sharpe ratio and M-squared
Excess return per unit of total risk
Treynor Measure and Jensen’s Alpha
Excess return per unit of systematic risk
Continuation pattern
Triangles, rectangles, pennants, flags
Price-based indicators
Bollinger bands, Rate of change, RSI, Stochastic, MACD
Covariance
E(Rt,1-R1)(Rt,2-R2)/n-1
Country Risk Premium
(sovereign bond yield-tbond yield)*(stdev of developing country’s index/stdev of soverign bonds in US currency)
Business Risk
Sales Risk + Operating Risk
Beta
covim/stdev^2m
Multi Stage Supernormal growth
Po = D1/(1+ke) + … + Dn+1/ke-gc + Pn/(1+ke)^n where Pn = Dn+1/(ke-gc)
Loan to value ratio
Current mortgage account/current appraised value
Modified Duration
the weighted average of the number of years until the bond is paid off/(1+YTM)
Approximate change in bond price
- modified duration * change in YTM
Approximate modified/effective duration
(V_ - V+)/(2 * V0* change in YTM or Curve)
Approximate/Effective convexity
(V_ + V+ - 2V0)/ ((change YTM or curve)^2 * V0)
Change in Bond Price
-(annual modified duration)(change YTM) + (1 + Convexity)(change YTM)^2
Put-call Forward parity
F0(T)/(1+Rf)^T + p0 = c0 + X/(1+Rf)^T
Futures price for a commodity
Futures price = spot price (1 + risk-free rate) + storage costs - convenience yield
Backwardation
convenience yield is high and futures prices are less than spot prices
