Multiple Choice Test Revision Flashcards
Present Value formula
(PMT[1 - (1 + i)-n ]) / i
NPV Calculation
Sum of the present value of cash inflows less the present value of cash outflows
Real rate of return formula
(1 + nominal rate)/(1 + inflation rate) - 1
Face value =
Principal + Interest
FV =
PV(1 + i)n
Compound interest formula
A = P ( 1 + R/N) ^nt
69 95 99.7 rule
About 68% of the values fall within 1 sd of the mean
95 within 2 sd
99.7 within 3sd
4 stages of business cycle
Recovery/Expansion
Boom/peak
Contraction
Recession/trough
Solvency ratio
Total net worth divided by total assets expressed as a percentage
This means that the Smiths’ family assets would need to fall by 68.28% for their ownership of their assets to fall to zero.
Liquidity ratio
Liquid assets divided by current debts expressed as a percentage
Savings ratio
Cash surplus divided by income after tax expressed as a percentage
Savings expressed as percentage of total income. It is likely that the savings ratio will be low for a young couple with small children and also for an elderly couple.
Debt service ratio
Monthly loan repayments divided by monthly net income expressed as a percentage
This ratio can be used to indicate the effect of a particular course of action
pv =
FV/(1+i)^n
Earnings per share (EPS)
provides an indication of company profitability
operating profit after tax divided by number of ordinary shares
Price / Earnings ratio (P/E ratio)
shows how much the market is prepared to pay for shares in relation to reported profits
current market price divided by eps
Dividends per share (DPS)
provides an indication of company profitability and payout of dividends
dividend to ordinary shareholders divided by number of ordinary shares
Dividend yield ( DY)
relates the dividends paid to the current market price
provides an insight into the return on investment
dps divided by market price
