Ratios Flashcards
Jensen alpha
Ration & definition
JA = rp - [ rf + B (rm - rf) ]
Commonly referred to as Alpha it is the measure of added value from an investment manager.
CAPM
CAPM = Rf + B * (rm-rf)
Estimated expected rate of return for an asset or investment, relative to the rest of the market.
Rule of 72
72 / rate of return
Shortcut method estimating how long it would take in years for initial investment to double in value.
Arithmetic mean
Price weighted.
Adds together values in set of numbers and diving by amount of numbers in the set
Example indices Dow Jones Industrial Average
Geometric mean
Unweighted geometric index
Multiplies set of numbers, then the nth root is taken. N being the amount of numbers in the set
Example indices FT30
Flat Yield
Current market price / years to maturity
An approximation of yield to maturity
Gross redemption yield
Flat yield - annual redemption yield
Annual redemption yield
Par - market price = X
X / years to maturity = Y
( Y / market price ) x 100
Modified duration
Macaulays duration / (1 - GRY)
Calculates the % change in the bond price for every 1% change in interest rates
Macaulays duration
Represents the average time until a bonds cash flows are received by the recipient
Calculating beta
B = expected return - risk free
—————————————
Market risk - risk free
Beta of the market is 1, therefore beta of the fund indicates the volatility of the fund.
This can be read in % terms.
Money weighted rate of return
End value - initial value + withdrawn funds
- contributed funds
—————————————————————
Initial vale - or + (period of time in years x withdrawal)
Period of time in years is n/12
Compounding
FV = present value x (1+r)n
Discounting
Present value = future value
——————
(1 + r) n
Income yield
Gross annual coupon
——————————- X 100
Market price
