Even though we all rightfully expect less calc and more conceptual q’s… being able to recall a formula helps me remember relationships and such. Also I get excited when I read a q and the formula flashes in my head. So this week I am going to take some time just to review formulas, (and there are a lot more than I initially thought.) Anyway maybe post a formula you think gets glossed over but could be worth an easy 2 points. I’ll start: Cov ij = Beta i * Beta j * Var mkt
r= RFR + B(Market Risk premium) WACC= WeKe + (WdKd (1-T))
C=[S \* N(d1)] - [X * e-RfT * N(d2)] where d1 = [ln(S/X)+[Rf+(.5*s^2)] * T] / [s\*T^(1/2)] and d2 = d1 - [s \* T^(1/2)] AND P=C-S+(X*e-RfT) Better remember that one
I’m almost certain we don’t have to remember that formula (BS). Correct me if I am wrong though. (1/n)var + (n-1/n)COV Put-Call Parity: S + P = C + X/(1+r)
You never know… Schweser says “It appears as though the candidate is no longer responsible for using the BSM model to actually price a call option…”
going from memory here, maybe off a little (1/r) + {((1/r)* (1/ROE))*G} G=g/(r-g)
intrinsic P/E
P/E = (D/E)/ (r-g) where g=(1-D/E)*(ROE)
McLeod81 Wrote: ------------------------------------------------------- > You never know… Schweser says “It appears as > though the candidate is no longer responsible for > using the BSM model to actually price a call > option…” 0 chance. I will bet any amount of money at 1000 to 1 odds.
These are good. I am trying to hit some that aren’t covered as deeply in the LOS. Maybe it doesn’t say calculate, but it says describe. I can describe easier if I learn the formula as opposed to trying to remember three paragraphs. intrinsic P/E and the var of an equally weighted port were good ones. maybe put call parity for forwards, adjusted R^2, E(div), Takeover gain for the aquirer…
E(D1) = D0 + [E(^EPS)]*(target D/E)*(1/T)
We don’t need this for the exam, but the forumla might cause some (much needed) insomnia. Here it comes… Black Scholes Merton Model ------------------------------------ Co = [So * N(d1)] - [X * e^[(-RFRc)*(T)] * N(d2)]
Justified Trailing P/E [Div Pay % * (1+g)]/(r-g) Justified Leading P/E (Div Pay %)/(r-g) Justified P/B (ROE - g)/(r-g) Justified P/S [(E/S)*(Div Pay %)*(1+g)]/(r-g)
adjusted R square = 1 - ((n-1)/(n-k-1) * (1 - R square)) it is always smaller than R square as long as k >= 1 it can be negetive number
Today’s formula is… Growth duration model. ln[(high g stock P/E) / (low g stock P/E)] = T * ln[(1+gh+dh) / (1+gl+dl)]. yikes. there are a lot of formulas. I have three pages of handwritten formulas already with fsa and econ to go…
I abbreviated the list into a word document that’s currently hanging in my cube.
This post is a great idea…keep them coming.
H-model: Value at time 0= (Div 0 (1+long term growth rate)/r - long term growth rate) + Div 0 x H x (short term growth rate minus long term growth rate)/r - long term growth rate) where H = t over 2 where t = duration of fast growth phase
Word is nice but handwriting the formulas helps me. I make a rough list as I flip through the book then I re-write everything and organize it, one topic per page and each page divided roughly by reading or formula topic. Then when I need to recall a formula I can picture the sheet for that topic in my head and then picture the section of the pg the related formulas were on, and then try to recall writing it down (several times). It is amazing how the mind works. In fact, a lengthy list of “hanging on my cube” jokes popped into my head within seconds of reading that post. I will refrain from posting them here.
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