FORMULAS - SIMPLE Flashcards
(31 cards)
Compounding Formula
Present Value Formula
Total Return Rate
Total Return / Original Investment
What is Expected Return?
How do you calculate it?
An investment’s projected return based on different scenarios (i.e. Bull, Bear, or Neutral Market).
By multiplying the asset’s projected return by its likelihood of occurrence and then adding all resulting weighted values. For example:
Bull 15% X 40% = 6%
Bear -10% X 30% = -3%
Neutral 7% X 30% = 2.1%
———————————————-
Total Expected Return = 5.1%
What is Overall Return on a diversified portfolio?
How can you calculate it?
It is the return of different asset classes weighted per their percentage makeup of the whole portfolio.
By multiplying each asset’s percentage makeup of the total portfolio by its return. Then adding all resulting weighted values. For example:
Equities 30% of Portfolio X 10% Return = .03
Bonds 40% of Portfolio X 25% Return = .1
—————————————————————
Overall Total Expected Return = .13 = 13%
Sharpe Ratio Formula
(Portfolio Return - Risk Free Return) / Standard Deviation
Rule of 72
72 / Rate of Return = Years to Double
*72 / Years to Double = Rate of Return
Payments in Perpetuity
Lump Sum = Periodic Pmt / Return %
Current Yield (bond)
Current Yield (stock)
Annual Interest / Current Mkt $
Annual Div / Current Mkt $
Needed stock price to achieve a client’s requested return
Price = Annual Payout / Required Return
Page 246
Expected Return
Expected Return =
Risk Free Return +
[Beta X (Mkt Return - Risk Free Return)]
Earnings Per Share
Net Earnings / Common Stock Shares
Margin of Profit formula
Operating Profit / Gross Sales
Debt to Equity Ratio
Total Debt / Net Worth
Capitalization formula
Shareholder’s Equity + Bonds
Acid Test Ratio
(Current Assets - Inventory) / Current Liabilities
- Most stringent measure of liquidity
P/E Ratio
As what is this sometimes referred?
Market Price / EPS
The multiple at which a stock is selling
Price to Book Ratio
Book Value per Share Ratio
Market Price / Book Value per Share
(Total Stockholder’s Equity - Pref’d Stock) / Outstanding Common Shares
What is the Balance Sheet equation
Total Assets = Total Liabilities + Net Worth
Working Capital
Current Assets - Current Liabilities
Current Ratio
Current Assets / Current Liabs
Quick Ratio
(Current Assets - Inventory) /
Current Liabilities
What is Shareholder’s Equity?
What is Common Equity?
Common Stock & Retained Earnings
Everything except Preferred Stock
Operating Income
Net Sales - Operating Expenses
