BUS 312 - M2 formulas

Selling after 1 year

P0 = (d1+P1)/(1+re)

The next buyer sells after 1 year

Multiple Cash flow discounting

perpetuity for constant dividend

P0 = d/re
or
re = d/P0

Growing perpetuity for dividend growth model 

Pt = dT/(re - g)
or
re = (dT/Pt) + g

Capital gain rate

Payout ratio

d1/E1

Forward price earning ratio

P0/E1

Expected dividends

dt + 1 = d0 x (1+g)^T

P(Total)

PV1 + PV2

Delayed growing perpetuity (second stage)

Stock price

ESP x P/E ratio

P/E ratio

Price to earnings per share share 

NPV

PV(benefits) - PV(costs)

PV (multiple)

PV

Payback year T+1

Year T cashflow + Year T+1 cashflow

Annuity

Growing annuity

Average Return

• If $Ri do -1 (before 1/n)

• Ri ($) = (Potential Return/Investment ) -1

Standard Deviation

• Subtract Average from all %s

• Square sums 

• Sum all sums 

• Do sum/n → then √sum

Standard Deviation when probabilities are given

Ri

w =

w = Value of risky asset / total value of portfolio

Utility Function

1-w =

1-w = Value of safe asset / total value of portfolio 

Portfolio Expected return

CAL Slope

Portfolios Standard Deviation

SDp = w x SDr 
or 
w = SDp/SDr

Sharpe Ratio

Portfolio Variance 

SDp² = w² x SDr²

Optimal Allocation

Basic formula 

When one asset is risk free

If WA, WB > 0

SDp ≤ Wa x SDa + Wb x SDb

When P = -1

Two portfolio 

Wa+ Wb = 1