Exam Formula/Notes
1. Intrinsic Value of Put option = Strike – Selling (Stock) Price
2. Intrinsic Value of Call option = Selling (Stock) Price – Strike
3. Tying income of mangers to success of the firm
4. TIPS formula: (1000 x coupon) x (1 + first inflation rate) x (1 + second inflation rate) ……
5. Pay less for security that has higher risk
6. r = rm / (1- tax rate)
7. During rising prices, a company using the LIFO method assumes that the sale is from the newest, highest cost inventory
8. P/E ratio = stock price /earnings per share *earnings per share=net income/ # outstanding shares
9. Bonds with a call provision pay higher yields than comparable noncallable bonds.
10. When given initial margin how much is borrowed from the broker? Formula: Investment needed – Margin paid *Investment
needed = # shares x $ per share *Margin paid = Investment needed x initial margin %
11. A price weighted index
12. How much to buy a T-bill for? Formula: FV x (1 – (ask% x days to maturity)/360
13. Quick ratio: (CA – Inventory)/CL; TIE = EBIT/Interest expense; Debt ratio = (CL + LT debt)/ total assets
14. Zero coupon = FV/(1+YTM) ^n
15. Goodwill doesn’t belong on the income statement
16. Until 1999 the Glass Steagall Act separated commercial banking & investment activities
17. A benchmark market value index – (P1/P0)-1 *Yesterday is P0, today is P1
18. Underwriter: an expert who takes a look at finances and assesses risk
19. ROA when given net profit margin, net sales, & total assets; ROA = Net profit/Total assets *Net profit= net sales x net profit
mar. %
20. Current Bond Yield = (FV x coupon)/Bond price
21. ROE with debt ratio, total assets, & net income; ROE = Net income/ ((1-debt ratio) x total assets or ROE = Net income/total
equity
22. EBIT: Earnings before interest and taxes = Revenues – (C.O.G.S, Admin Ex., Depreci. Ex., other Ex.)
23. After- Tax return = Pretax x (1-tax)
24. Pretax = After tax /(1-tax)
25. Stock prices tend to rise when corporate earnings rise
26. Common Stock is not a money market security
27. Price weighted index: Find the average of P0 and P1 prices and then use formula: (P1/P0)-1
28. Yield to call: N x 2, PMT (coupon x FV)/2, -price= PV, FV x call%= FV, CPT I/Y x 2
29. YTM: N, PMT (coupon x FV)/2, -price = PV, FV, CPT I/Y x 2
30. Yield to put: N x 2, PMT (coupon x FV)/2, -price= PV, FV x put%= FV, CPT I/Y x 2
31. Yield to worst = MIN (YTM, YTC, YTP) *find the lowest of the 3
32. An **increase** in value of Yen against the US dollar….to either lose market share or reduce its profit margin on its US sales
33. A puttable mortgage bond is likely sold at the lowest yield
34. Debt securities, equity securities, and derivative securities are all financial assets
35. PV of bond: N = years of bond, I/Y, PMT= coupon x FV, FV= 1000 CPT PV * already annualized, don’t x by 2 or divide by 2
36. Sell government bonds reducing money supply, increasing interest rates, and slowing aggregate demand
37. NSYE – secondary market transaction
38. Secondary Analysis – investigation and analysis of prices and portfolio
39. Both inventory and net income a higher value
40. Most direct way to stimulate or slow economy: Fiscal Policy
41. Current ratio: CA/CL; Inventory Turnover = C.O.G.S/Inventory
42. Top down analysis….US economy or even the global economy
43. Net working capital: CA – CL
44. Accounts Receivable turnover: Net sales/Accounts Receivables
45. Stop order – is an order to buy or sell a stock at the market price. Can also protect your unrealized gains should it fall
46. Sell limit order – used when trader wants to sell a stock only when it has rose more than the quote price (limited)
47. Buy limit order – used when trader wants to buy a stock only when it has dropped less than the quote price (limited)
48. Market order – used when trader wants to sell or buy as quickly as possible
49. Taxable equivalent yield: r = rm *bond yield*/ (1-tax rate)
50. Dupont Analysis = Net profit margin x asset turnover x equity multiplier: Net profit margin (Net income/Revenues); Asset
turnover (Revenues/Total assets); Equity multiplier (aka leverage ratio: total assets/total equity
51. Holding period return = ((price at the last year – price at year 0) + Dividend)/Price at year 0. *P0 = PV (YTM at purchase/2),
N=years x 2, PMT (coupon x FV)/2, FV, type 0, *P1= PV (YTM at sale/2), N=(years left – 1)x2, PMT(coupon x FV)/2, FV, type 0*
