Exam2_Formulas

Exam2_Formulas - E ( ~ r 2 j ) & & r 2 |{z} [ E (~...

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Formulas Price of an n -period coupon bond ( PMT : coupon; FV : face value; y : yield to maturity): P 0 = n X t =1 PMT (1 + y ) t ! + FV (1 + y ) n Fair value of a stock ( ^ D t : expected amount of dividend at t ; r P 0 = 1 X t =1 ^ D t (1 + r ) t : P 0 = ^ D 1 r g = D 0 (1 + g ) r g : CAPM formula (Security Market Line formula) R i = R f + i R m R f ± ; i = Cov ² ~ R i ; ~ R m ³ V ar ² ~ R m ³ = ± i ± m ² im Beta of a two stock portfolio is: P = w A A + w B B : More general ( n stocks) case: P = P n i =1 i : Summary of Statistical Concepts Expected rate of return , r = E (~ r ) : r = J X j =1 ~ r j ± Pr ( j ) where ~ r j is the return outcome when the state j 2 [1 ; 2 ;:::;J ] occurs. Pr ( j ) is the probability of the j -th state outcome. Variance , ± 2 = V ar (~ r ) ± 2 = J X j =1 (~ r j r ) 2 ± Pr ( j ) = 2 4 J X j =1 Pr ( j ) ± ~ r 2 j 3 5 | {z }
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Unformatted text preview: E ( ~ r 2 j ) & & r 2 |{z} [ E (~ r )] 2 Standard deviation , ± = p V ar (~ r ) : Covariance and Correlation between asset A&s return and asset B&s return: Cov AB = J X j =1 (~ r A;j & & r A ) ± (~ r B;j & & r B ) ± Pr ( j ) = 2 4 J X j =1 Pr ( j ) ± ~ r A;j ± ~ r B;j 3 5 & & r A ± & r B ² AB = Cov AB ± A ± B ; Cov AB = ± A ± B ² AB ; & 1 ² ² AB ² +1 : Variance and standard deviation of a 2-stock portfolio (stocks A and B), ± 2 p and ± p : ± 2 p = w 2 A ± 2 A + w 2 B ± 2 B + 2 w A w B ± A ± B ² AB | {z } Cov AB 1...
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This note was uploaded on 02/22/2012 for the course FINA 363 taught by Professor Masoudie during the Spring '10 term at South Carolina.

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