Series 7 Core Formula Sheet & Key Concepts (Vocabulary)

Vocabulary flashcards covering key terms and formulas from the Series 7 Core Formula Sheet notes.

Option contract multiplier

The number of underlying shares per option contract; for equity options it is 100 shares unless stated otherwise.

Day-count convention

The method used to calculate accrued interest or time-based calculations; verify conventions on questions.

Theoretical Ex-Rights Price (TERP)

TERP = (N \times MP + SP) \div (N + 1) , where N = rights needed to buy 1 new share, MP = market price, SP = subscription price.

Value of 1 Right (Cum-Rights)

(MP - SP) \div (N + 1), where MP = market price, SP = subscription price, N = rights needed.

Value of 1 Right (Ex-Rights)

(MP - SP) \div N

Rights ratio (N)

Number of rights required to purchase one new share in a rights offering.

Subscription price (SP)

Price at which rights holders can buy a new share in a rights issue.

Market price (MP)

Current market price of the stock before the rights issue.

NAV per share

(\text{Fund Assets} - \text{Fund Liabilities}) \div \text{Shares Outstanding}

Front-end sales charge (front-end load)

Percentage charged on purchase; calculated as POP \div POP\;NAV (or POP\;NAV \div POP).

POP (Offering Price)

NAV \div (1 - \text{Sales Charge \%})

Expense ratio

\text{Operating Expenses} \div \text{Average Net Assets}

Current yield (fund)

\text{Net Investment Income} \div \text{Average Net Assets}

Dollar-cost averaging (avg cost per share)

\text{Total dollars invested} \div \text{Total Shares Purchased}

Bank discount yield (BDY)

BDY = [(F - P) / F] \times (360 / d); F = Face value, P = Price, d = days to maturity.

Bond-equivalent yield (BEY)

BEY = [(F - P) / P] \times (365 / d); F = Face value, P = Price, d = days to maturity.

Taxable-equivalent yield (muni to taxable)

\text{Taxable yield} = \text{Muni Yield} \div (1 - \text{Tax Rate})

After-tax yield

\text{After-tax yield} = \text{Taxable Yield} \times (1 - \text{Tax Rate})

Debt service coverage

\text{Net Revenues} \div \text{Debt Service}

Debt per capita

\text{Net (Direct + Overlapping) Debt} \div \text{Population}

Debt to assessed value

\text{Net Debt} \div \text{Assessed Property Value}

Tax collection ratio

\text{Taxes Collected} \div \text{Taxes Levied}

Conversion ratio

\text{Par} \div CP; shares per bond, where CP is the conversion price.

Market conversion price

\text{Bond Price} \div \text{Conversion Ratio}

Parity price of stock

\text{Bond Price} \div \text{Conversion Ratio} (stock price where bond value equals conversion value).

Parity price of bond

\text{Stock Price} \times \text{Conversion Ratio}

Conversion price (CP)

Price per share used to determine number of shares from a convertible bond.

Initial Reg T margin (50% rule)

50\%\ of purchase price (or \$2,000 minimum, exam convention).

Maintenance margin (long)

25\%\ of LMV (minimum).

SMA buying power

SMA \times 2

Equity (long account)

\text{Equity} = LMV - DR (Long Market Value minus Deposit/Reg T requirement).

Maintenance margin (short)

\text{Maintenance} = 30\% \text{ of } SMV (minimum).

Options margin (long)

100\%\ of premium.

Covered call margin

Stock coverage as the margin concept for a covered call (house formula; concept only).

CAPM

E(Rp) = Rf + \betap \times (E(Rm) - R_f); expected return on a portfolio given risk-free rate, beta, and market return.

Alpha (ex-post)

\text{Actual Return} - [Rf + \beta \times (\text{Market Return} - Rf)]

Beta

\text{Covariance(Asset, Market)} \div \text{Variance(Market)}