Formulas and Definitions Flashcards

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1
Q

(Erm - rf) B

A

Stock Risk Premium - “Market Risk premium times beta”

Erm - Expected Return of the Market
rf - Risk-free return
B - Beta

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2
Q

(Erm - rf)

A

Market Risk Premium - “Expected Market return minus risk free return”

Erm - Expected Return of the Market
rf - Risk-free return

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3
Q

Calculating Margin Maintenance Call

A

(1 - Initial Margin %) Purchase
—————————— x Price of
(1 - Maint Margin %) Stock

Ex:
Initial - 50%
Maint - 30%
Price: $70

.5/.7 * $70 = $50

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4
Q

Coefficient of Variation (CV)

A

Risk per unit of expected return. Risk on top.

Opposite of risk-adjusted return

         Std deviation CV =    ———————
          Avg. return
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