Technical aspects

Question 1

What is the formula for standard VAR?

Answer 1

1/(T-1) * ((r1 - rbar)^2 + (r2-rbar)^2 …

Question 2

What is VAR for multiple economic states?

Answer 2

probA(rA - rbar) + probB(rB - rbar) …

Question 3

What is the covariance formula?

Answer 3

SUM: probability(e) * (rA,e -rbarA)(rB,e -rbarB)

Question 4

How do we get correlation from covariance?

Answer 4

Correlation = Cov(A,B) / SDA * SDB

Question 5

How do we get Beta from covariance?

Answer 5

B = Cov(Ri,Rm) / Varm

Question 6

How do we get Beta from correlation?

Answer 6

B = (P(i,M) SDi) / SDm

Question 7

With no taxes (MM), what is the cost of equity formula?

Answer 7

RE = RA + (D/E)(RA - RD)

Question 8

Under MM with corporate taxes, and non perpetual returns, what is the formula for the unlevered and levered firm value?

Answer 8

VU = EBIT * (1-Tc)
VL = VU + (RD*D*Tc)

Question 9

Under MM with corporate taxes, and perpetual earnings, how is unlevered and levered firm value calculated?

Answer 9

VU = EBIT(1-Tc)/RA
VL = VU + ((RD * D * Tc)/RD)

Question 10

What is the formula for the value of a call option?

Answer 10

Share price - Exercise price/(1+rf)^T

Question 11

What is the formula for the value of a put option?

Answer 11

Exercise price/(1+rf)^T - Share price