Formulas and Definitions Flashcards
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
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
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
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
