Quantitative Finance and Investments Core Formula Sheet - Fall 2013
Finance Formula
-
Upload
tltutortutor -
Category
Business
-
view
5.588 -
download
1
description
Transcript of Finance Formula
BA 640 Formula Chapter 6 Risk and Return 1) Rate of return = Amount received - Amount invested Amount invested 2) Expected rate of return Pi = Probability , ki = Rate of return Pkk ∑
n
1=iii = ˆ
Calculator 1) Selecting Mode LR : MODE 5 2) Clear Data : CST EXE AC 3) Insert return before : -22 ALFHA Nj 0.1 MAR …… SHIFT 1 EXE ; DT x
3) Risk or Standard deviation σσ 2 Variance == ( )∑=
−=n
iii Pkk
1
2ˆ
Calculator 1) Insert return before : -22 ALFHA Nj 0.1 MAR …… SHIFT 2 EXE ; DT nxσ4) Coefficient of variation CV = Risk / Return = σ / x 5) Beta coefficient ( β ) Calculator insert Mkt. before : 25.7 ALFHA CFj 40 MAR …… SHIFT 8 EXE , DT β 6) Correlation ( r ) Calculator insert Mkt. before : 25.7 ALFHA CFj 40 MAR …… SHIFT 9 EXE ( -1 < r < 1 ) , DT r
7) Expected return on a portfolio = , Risk on a portfolio pk̂ ∑=
n
iii kw
1
ˆpσ ( )∑
=
−=n
iippi Pkk
1
2ˆ
8) Security Market Line (SML) : ki = kRF + (RPM)bi Required return = Risk-free return + Premium for risk Required return on stock i = Risk-free rate of return + (Market risk premium)(Stock i ‘ s beta) Chapter 9 Bonds and Their Valuation
1) PV = Calculator 1) Selecting Mode FIN : MODE 4 ( ) ( ) ( )nn
kCF
kCF
kCF
+++
++
+ 1.....
11 22
11
2) Clear Data : SHIFT AC EXE AC 3) PV = 10 n 10 i% 100 PMT 1000 FV COMP PV EXE 2) Yield to maturity (YTM) or kd = 10 n -887 PV 90 PMT 1000 FV COMP i% EXE Chapter 10 Stock and Their Valuation 1) Stock Value = PV of Dividends
2) If g is constant, then 3) gPD
k s +=0
1ˆ gkgk −−
( ) ( ) ( ) ( )∞∞
+++
++
++
+=
ssss kD
kD
kD
kDP
1. . .
111ˆ
33
22
11
0
( ) DgDPss
=+
= 100
1ˆ
3) sk = Actual dividend yield + Actual capital gains yield
4) ps
psps k
DV = or
ps
psps V
Dk =
5) Use the SML to calculate kS ; kS = kRF + (kM - kRF) bFirm Chapter 11 The cost of Capital 1) After-tax component cost of debt = kd ( 1-T ) 2) The cost of preferred stock ; k =
n
psps P
D
3) Weighted Average Cost of Capital (WACC) ; WACC = wdkd (1-T) + wpskps + wceks 4) ks = = ksk̂ RF + RP = D1 / P0 + expected g 5) ks = Bond yield + Risk premium 6) g = (Retention rate)(ROE) = (1.0 – Payout rate)(ROE) = b(ROE) Chapter 13 The Basics of Capital Budgeting : Evaluating Cash Flows 1) Payback period = Year before full recovery + Unrecovered cost at start of year Cash flow during year 2) Net Present Value (NPV) : Sum of PVs of inflows and Outflows = PV inflow – PV outflow tCF or ( )
NPV = ∑ t
n
t k+= 10 ( ) 01 1
CFk
CFNPV tt
n
t
−+
= ∑=
Calculator -100 CFj 10 CFj 60 CFj 80 10 i% COMP NPV EXE
( )0
10
=+
= ∑=
tt
n
t IRRCF
3) Internal Rate of Return (IRR) : NPV =0 ; IRR Calculator -100 CFj 10 CFj 60 CFj 80 10 i% COMP IRR EXE
4) Modify Internal rate of return (MIRR) : PV costs = PV terminal value : PV costs = nMIRRTV
)1( +
Chapter 8 Time Value of Money
1) or ( )
n
nnn
i+11FV =
i+1FV
= PV ⎟⎠⎞
⎜⎝⎛ PVFV = +1( )nn i
2)
mnNom
n mi
PVFV ⎟⎠
⎞⎜⎝
⎛ += 1 or Effective annual rate 0.11 −⎟⎠⎞
⎜⎝⎛ +=
mnNom
mi
Chapter 14 Cash Flow Estimate and Risk Analysis 1) Net Proceeds from sales (NP) = MV + Tax ; MV = Market value = MV + Tax rate ( MV-BV) ; BV = Book value 2) Net operating working capital (NOWC) = All current assets that _ All current liabilities that do not pay interest do not pay interest = Operating current assets – operating current liabilities 3) Operating capital = (Net operating working capital) – (Net plant and equipment) 4) NOPAT = Net operating profit after taxes = EBIT(1-Tax rate) 5) Operating cash flow (OCF) = NOPAT + Depreciation = EBIT(1-Tax) + Depreciation = (Sales – CGS – Operating Expense – depreciation)(1-Tax) + Depreciation = (Sales – CGS – Operating Expense)(1-Tax) + (Depreciation x Tax) 6) Free cash flow (FCF) = Operating cash flow - Gross investment in operating capital = NOPAT – Net investment in operating capital 7) Free cash flow (FCF) = EBIT(1-Tax) + Depreciation + ∆NWC + ∆CAPEX 8) EBIT = Sales – CGS – Operating Expense – depreciation = Sales – Variable Cost – Fixed Cost