Final Formulas

Question 1

pricing a bond

Answer 1

P=cpn[1/r - 1/(r+1)^t] + FV/(1+r)^t

Question 2

bond at par

Answer 2

FV=price

Question 3

bond discount

Answer 3

FV>price

Question 4

total return

Answer 4

r= (FV/PV)^(1-t) -1

Question 5

pricing a stock

Answer 5

P=Div1/(1+r) + Div2/(1+r)^2 + …. + (DivH + PH)/(1+r)^H

Question 6

dividend

Answer 6

div=earnings(1-plowback)

Question 7

alternative price of stock formula

Answer 7

P= (earnings(1-pb))/(r-(ROEPB))

Question 8

PVGO

Answer 8

PVGO=Pg-Png
PVGO>0 -> reinvest (decrease div)
PVGO<0 -> increase div

Question 9

Expected return

Answer 9

E(R)= p1R1 + p2R2 + p3R3

Question 10

variance

Answer 10

v^2= p1(R1 - E(R))^2 + p2(R2-E(R))^2

Question 11

standard deviation

Answer 11

v= sq rt of v^2
(= total risk)

Question 12

NPV

Answer 12

NPV= -C0 + C1/(1+r) + C2/(1+r)^2

Question 13

CAPM

Answer 13

CAPM= rf + B(rm-rf)

Question 14

Beta

Answer 14

market risk

Question 15

slope of Security Market line

Answer 15

slope= (rm-rf)

=market risk premium

Question 16

using CAPM to estimate expected return

Answer 16

P= (Div1 + P1)/(1+E(R))

Question 17

WACC

Answer 17

WACC=D/V(1-t)rD + E/VrE (+P/VrP)
rD= ytm
rP= DIV/P
rE= CAPM or P=DIV/(Re-g)

Question 18

value of levered firm

Answer 18

=value of all equity firm + PV of tax shield - costs of financial distress

Question 19

bond premium

Answer 19

FV