Formulas/Calculations

Question 1

This formula helps you understand the taxable equivalent of a tax-exempt yield. It’s calculated by dividing the tax-exempt yield by (1 - tax rate).

Answer 1

Tax Free Equivalent Yield

Question 2

This helps determine the required rate of return on an investment. The basic formula is: Required Rate of Return = Risk-Free Rate + Beta * (Market Risk Premium).

Answer 2

CAPM (Capital Asset Pricing Model)

Question 3

The current value of a future sum of money or stream of future payments, considering a specified rate of return (discount rate).

PV = FV / (1 + DR)n

Answer 3

Present Value

Question 4

This is the amount of money to which a present sum will grow, given a specific interest rate and time period.

FV = P(1+r)n

Answer 4

Future Value

Question 5

This measures the annual income (interest or dividends) of an investment, divided by its current market price.
[Answer]= Annual Income / Current Market Price

Answer 5

Current Yield

Question 6

This ratio measures the risk-adjusted return of an investment. It’s calculated as (Portfolio Return - Risk-Free Rate) / Portfolio Standard Deviation

Answer 6

Sharpe Ratio

Question 7

This measures the excess return of an investment compared to its benchmark index. It’s calculated by subtracting the portfolio’s expected return (based on CAPM) from the actual portfolio return.

Answer 7

Alpha

Question 8

This calculation shows the net worth of a company per share. It’s calculated by dividing total shareholder equity by the number of outstanding shares.

Answer 8

Book Value per Share

Question 9

This metric reflects the portion of a company’s profits that are available to distribute to shareholders. It’s calculated by dividing net income by the number of outstanding shares.

Answer 9

Earnings per Share

Question 10

Definition: Measures a company’s stock price relative to its earnings per share (EPS).
Formula: [ANSWER]= Stock Price ÷ Earnings Per Share (EPS).

Answer 10

PE Ratio (Price to Earnings)

Question 11

This ratio indicates the percentage of earnings a company pays out as dividends. It’s calculated by dividing dividends paid by net income.

Answer 11

Dividend Payout Ratio

Question 12

This measures the total return of an investment over a specific period. It’s calculated as (Ending Value - Beginning Value + Income) / Beginning Value.

Answer 12

Holding Period Return