COMM 308 Study Guide - Fall 2018, Comprehensive Midterm Notes - Wwe Payback, Weighted Average Cost Of Capital, Total Return
11 Oct 2018
School
Department
Course
Professor
COMM 308
MIDTERM EXAM
STUDY GUIDE
Fall 2018
Equation List – COMM 308 – Booth et al Text, 4th edition
5.1 Future Value: Value (time n) = P + (n × P × k)
5.3 Present Value of n
F
V : 0(1 )
=+
n
n
F
V
PV k
5.4
Future value of an annuity: (1 ) 1
n
n
k
FV PMT k
⎡
⎤
+
−
=
⎢
⎥
⎣
⎦
5.5 Present value of an annuity: 0
1
1(1 ) n
k
PV PMT k
⎡
⎤
−
⎢
⎥
+
⎢
⎥
=
⎢
⎥
⎢
⎥
⎣
⎦
5.8 Present value of a perpetuity: 0=PMT
PV k
5.10 Present value of a growing perpetuity: 01
0
(1 )+
==
−
−
PMT g PMT
PV kg kg
5.11 Present value of a growing annuity: 1
0
1
11
⎡
⎤
+
⎛⎞
=−
⎢
⎥
⎜⎟
−+
⎝⎠
⎢
⎥
⎣
⎦
n
PMT g
PV kg k
5.14 Effective rate with continuous compounding: 1
=
−
QR
ke
5.15 Effective Period Rate: 11
⎛⎞
=+ −
⎜⎟
⎝⎠
m
f
QR
km
6.3 Current Yield: =
A
nnual Interest
CY B
6.5 Fisher Relationship:
()
(
)
1 Real Rate 1 Expected Rate 1=+ ×+ −
⎡⎤
⎣⎦
RF
6.7 Price of T-Bill given BEY:
1365
=⎛⎞
+×
⎜⎟
⎝⎠
BEY
F
Pn
k
7.10 Share price with growth opportunities: 1
0=+
c
EPS
P PVGO
k
7.11 Growth rate: =×
g
bROE
8.3 Total return = Income yield + Capital gain (loss) yield = 10 110
1
00 0
PP CFPP
CF
PP P
−
+−
+=
8.5 Geometric mean (GM) =
[]
1/
123
(1 )(1 )(1 )...(1 ) 1
n
n
rrr r+++ + −
8.6 Expected return:
()
1=
=×
∑
n
ii
i
ER r Prob
8.7 Ex post
2
1
()
1
σ
=
−
=−
∑
n
i
i
rr
n
8.8 Ex ante 2
1
()( )
σ
=
=−
∑
n
ii
i
Prob r ER
8.9 Expected portfolio return:
1
()
=
=×
∑
n
pi
i
ER w ERi
8.11 Portfolio standard deviation: 22 22
()() ()() 2()()( )
σσσ
=++
pAABB ABA
ww wwCO
B
V
i
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8.12 ,,
1
()(
=
=−
∑
n
AB i A i A B i B
i
COV Prob r r r r )−
8.14
ρ
σσ
=
AB AB A B
COV
8.16 If 1,
ρ
=−
AB then: (1 )
σ
σσ
=−−
p
AB
ww
9.3
σ
σ
⎛⎞
−
=+
⎜⎟
⎝⎠
A
p
p
A
ER RF
ER RF
9.4 Slope of the CML=
σ
−
M
M
ER RF
9.6 Sharpe Ratio =
σ
−
p
p
ER RF
9.7 ,,
2
ρ
σ
βσ
σ
==
iM iM i
i
M
M
COV
9.8 11 2 2 ...
β
ββ
=+ ++
β
p
nn
ww w
9.9 ()
β
=+ −
iM
kRFER RF
i
12.3
TV = Option premium – IV
12.5
Put-Call Parity: P + S = C + PV(X)
13.1 Payback: Find T such that:
123
... T
CF CF CF CF CF++++ =
0
13.2 Discounted Payback: Find T such that: 3
12
0
123
...
(1 ) (1 ) (1 ) (1 )
T
T
CF
CF CF CF CF
kkk k
++++ =
+++ +
13.3 3
12
00
123
1
...
(1)(1) (1) (1) (1)
=
=++++−= −
+++ + +
∑
n
nt
nt
t
CF CF CF
CF CF
NPV CF CF
kkk k k
13.5
()
()
=PV Cash inflows
PI PV Cash outflows
13.6 EANPV = 1
1(1 ) n
Project NPV
k
k
⎡⎤
−
⎢⎥
+
⎢⎥
⎢⎥
⎢⎥
⎣⎦
14.1 00 0
=+Δ +CF C NWC OC
14.2 (1 ) ( )=−+
tt t
CF CFBT T CCA T
14.4 =+Δ
nn
ECF SV NWCn
14.5 0
()()=+
n
NPV PV Annual CFs PV ECF CF−
14.6
1
1(1 )
()(1)
n
k
PV Operating Cash Flows CFBT T k
⎡
⎤
−
⎢
⎥
+
⎢
⎥
=−×
⎢
⎥
⎢
⎥
⎣
⎦
14.7 0
( )( )(T) ( )( )( )
(1 0.5 ) 1
() (1 ) ( ) (1 )
+
=×− ×
++ ++
n
n
Cd SVdT
k
PV CCA Tax Shield dk k dk k
20.8 Weighted Average Cost of Capital: (1 ) (1 )
+−
×⎛⎞ ⎛⎞
== =+−
⎜⎟ ⎜⎟
⎝⎠ ⎝⎠
ed
ae
KS K T D
ROI IC S D
KK
VV V
d
KT
V
ii
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Document Summary
Equation list comm 308 booth et al text, 4th edition. Future value: value (time n) = p + (n p k) Total return = income yield + capital gain (loss) yield = Sharpe ratio = i p k i i m. Put-call parity: p + s = c + pv(x) 1. 1 de ne nance and explain what is involves in the study of nance. 1. 2 list the major nancial and real assets held by canadians. 1. 3 explain how money is transferred from lenders to borrowers and the role played by market and. 1. 4 identify the basic types of nancial instruments that are available and explain how they are traded. 1. 1 what is finance: finance is the study of how and under what terms savings (money) are allocated between lenders and borrowers. The study of finance: the study of nance requires a basic understanding of: 1. 2 real versus financial assets: real assets are tangible items owned by persons and businesses; e. g:
