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Unformatted text preview: MARGIN/EQUITY = Value of Stock – Amount Borrowed MAINTENANCE MARGIN: (# of sharesX – Amt Borrowed)/(# of Shares X x) = maintenance margin and solve for X, the top part of the equation is the investor’s equity. GAIN/LOSS IN SHORT POSISTION = -# of shares X change in price, RATE OF RETURN = Gain or Loss/Invested funds OFFERING PRICE ON OPEN-END FUND = Nav/(1-load) PREMIUM OR DISCOUNT ON FUND = (Price – Nav)/Nav DIVIDENDS are removed after paying the 12-1b fee FOR GEOMETRIC MEAN: If the return is negative, subtract it from 1, don’t make the coefficient negative. RISK PREMIUM = Expected Rate of Return – Risk Free Rate EXPECTED RETURN =Required Return X Purchase Price COVxy=CORRxy X Standard Deviation of x X Standard Deviation of y CAL=Risk Premium(E(rp)-rf)/Total Risk(Standard Deviation of p), if premium increases the line will angle up, if both change the line will shift. Chap 6: The higher the reward-to-variability ratio of a portfolio means its CAL line will be steeper and will provide a higher level of return for each level of risk The CAL formed from the optimal risky portfolio will be the tangent to the efficient...
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This note was uploaded on 04/11/2008 for the course FIN 322 taught by Professor Sebuhara during the Fall '07 term at Binghamton.
- Fall '07