Series 7 - Equations

(U6) Covered call breakeven?

Stock COST − premium. Bought 40, wrote 45 call at 2 → 38. Stock + option = start from the stock price; the strike is noise.

(U3) Parity price of the stock?

Step 1: shares = par ÷ conversion price. Step 2: BOND price ÷ shares. Convertible at 50, bond 1,100 → 20 shares → $55.

(U16) P/E ratio?

PRICE ÷ EPS. $40 ÷ $2 = 20. Sanity check: P/Es are usually 10 to 30, never a decimal.

(U16) Dividend payout ratio?

Dividend ÷ EPS. $1.20 ÷ $4 = 30%. Dividend is paid OUT of earnings, so it goes on top. Under 100%.

(U16) Quick (acid test) ratio?

(Current assets − INVENTORY) ÷ current liabilities. (600 − 200) ÷ 200 = 2:1. Always LOWER than the current ratio.

(U18) Buying power?

EE × 2. EE = equity − 50% of LMV. LMV 30K, DR 12K → EQ 18K − 15K = 3K EE → $6,000.

(U18) Lowest LMV before a maintenance call?

DR ÷ 0.75. DR 30K → $40,000. Must be BIGGER than the DR.

(U18) Highest SMV before a short maintenance call?

CR ÷ 1.3. CR 65K → $50,000. Must be SMALLER than the CR (but close).

(U12) Oversubscribed tender offer?

Pro rata = max ÷ total tendered. 500K ÷ 800K = 62.5% → 1,000 × 62.5% = 625 shares.

(U4) Debt service coverage ratio?

NET revenue ÷ debt service. Net = gross − O&M. (10 − 4) ÷ 3 = 2×. Higher is better.

(U5) Treasury quote 101.16?

101 + 16/32 = 101.5% of $1,000 = $1,015. The decimal is 32nds, not cents.

(U8) Exclusion ratio (annuitized annuity)?

Taxable % = EARNINGS ÷ value. Invested 40K, worth 100K → 60K ÷ 100K = 60% taxable (ordinary income); 40% tax free return of basis.