1
Q
Conversion Price formula
A
PAR/shares
2
Q
Conversion Value formula
A
Convertible Shares * Price of stock
3
Q
Coefficient of Variation (CV) formula
A
standard deviation/mean expected avg return
4
Q
Coefficient of Variation (CV) description
A
- compares two assets with different average returns
- higher CV = riskier
- riskier = less likely investor will achieve average return
risk/return
5
Q
Risk Adjusted Return description
A
- opposite of CV
return/risk
6
Q
Covariance (COV) description
A
- measure 2 securities combined and their interactive risk
- measure of related risk
7
Q
Correlation Coefficient (p) description
A
- ranges +1 to -1
- risk is reduced when correlation < 1
8
Q
Covariance (COV) formula
A
(Correlation)(Std Dev1)(Std Dev2)
9
Q
Correlation Coefficient (p) formula
A
10
Q
Coefficient of Determination (R-Squared) description
A
- how much return is due to the market
11
Q
Coefficient of Determination (R-Squared) formula
A
p^2
- squaring correlation coefficient (p)
12
Q
Capital Market Line formula
A
13
Q
Capital Asset Pricing Model (CAPM) description
A
- single factor model
- calculates relationship of risk and return of individual security using BETA
14
Q
Capital Asset Pricing Model (CAPM) formula
A
15
Q
Portfolio Risk description
A
- measured through determination of interactivity of the standard deviation and covariance of securities in portfolio
- utilizes weight of both securities, deviations, and correlation coefficient
16
Q
Portfolio Risk formula
A
17
Q
Information Ratio (IR) formula
A
18
Q
Information Ratio (IR) description
A
- relative measure (compare to other IR)
- rank high to low
19
Q
Treynor Index (Tp) formula
A
20
Q
Treynor Index (Tp) description
A
- uses Beta as denominator
- relative measure (compare to other Treynor)
- measures reward achieved to level of systematic risk
- standardizes portfolio returns for volatility
21
Q
Sharpe Index (Sp) formula
A
22
Q
Sharpe Index (Sp) description
A
- if no r^2, always use Sharpe
- uses standard deviation as denominator
- relative measure (compare to other Sharpe)
- measures risk premiums of portfolio relative to total amount of risk in portfolio
23
Q
Investor seeking to invest in single fund should select fund with highest ___ ratio
A
Sharpe Ratio
24
Q
Arbitrage Pricing Theory (APT) description
A
- multifactor model
- attempts to take advantage of pricing imbalances
- inputs include factor like inflation, then specifics including expected returns and sensitivity to the factors
- standard deviation and beta are NOT inputs
25
Arbitrage Pricing Theory (APT) formula
26
Holding Period Return (HPR) description
- not compounded rate of return
- no consideration for time an investment was held
- focused on margin returns or after tax rate of returns
27
Holding Period Return (HPR) formula for cash flows
made / paid
28
Holding Period Return (HPR) formula for rate of return
29
Effective Annual Rate (EAR) description
- calculates annual interest rate earned on investment when compounding occurs more than once a year
30
Effective Annual Rate (EAR) formula
31
Geometric Average description
- time weighted compounded rate of return
32
Geometric Average formula
33
Geometric Average calculator
34
Net Present Value (NPV) description
- present value of cash flows minus initial cost
- evaluate capital expenses that will result in differing cash flows over useful life/investment period
- positive = make investment
35
Net Present Value (NPV) formula
36
Internal Rate of Return (IRR) formula
- solve for IRR
37
Internal Rate of Return (IRR) description
- compounded rate of return
- used with uneven cash flows
- discount rate that sets NPV formula = 0
38
Price-Earnings Ratio (P/E) description
- number of dollars investor will pay for each dollar of company earnings
- measure of relationship between stock price and earnings
- stock price as multiple of company earnings
- use when firm DOES NOT pay dividends
39
Price-Earnings Ratio (P/E) formula
Stock Price / EPS = P/E
40
Dividend Payout Ratio description
- relationship between amount of earnings paid to shareholders in form of a dividend, relative to EPS
- higher ratio = more mature company
- high ratio may also indicate possibility of dividend being reduced
41
Dividend Payout Ratio formula
42
Return on Equity (ROE) description
- measures overall profitability of company
- direct relationship between ROE, earnings, and dividend growth
43
Return on Equity (ROE) formula
Net Income/Equity
44
Dividend Yield formula
45
Dividend Yield description
- annual dividend as percentage of stock price
46
Tax Equivalent Yield (TEY) formula
think PRE tax
47
After-Tax Yield formula
48
Unbiased Expectations Theory (UET) formula
49
Unbiased Expectations Theory (UET) description
- PV LT interest rates imbedded expectations about future ST interest rates
- LT rates are geometric avg of current & expected future ST interest rates
50
Duration description
- bond's price sensitivity to changes in interest rates
- higher duration = more price sensitive
- moment in time investor is immunized from interest rate risk & reinvestment rate risk
- weighted avg time until investor receives all coupon payments & principal
51
(inverse/direct) relationship between coupon/YTM and duration
INverse relationship between coupon/YTM (INterest rates) and duration
52
Higher duration = (more/less) volatile bond price
more volatile
53
Longer maturity = (higher/lower) the duration
higher
54
Higher the coupon = (higher/shorter) the duration
shorter
55
Higher the YTM = (higher/shorter) the duration
shorter
56
Estimating Bond Price Change Formula
57
Convertible Bonds (CV) formula
58
Convertible Bonds (CV) description
- value of convertible bond
- terms of stock into which it can be converted
59
Property Valuation formula
60
Net Operating Income (NOI) formula
CFP
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Decks in class (9)
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