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Equity

 

Weight on the exam = 10%

Number of formulas = 15

CFA formulas

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Margin call trigger price

Margin call trigger price is the stock price that will trigger a margin call

mctp

P0 - initial stock price

IM - initial margin

MM - maintenance margin

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Price-weighted index

Price-weighted index is a stock index in which each stock influences the index in proportion to its price per share

pwi

Indexpw - price-weighted index

Nadj - number of stocks in index adjusted for splits

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Market value-weighted index

Market value-weighted index is a type of market index whose individual components are weighted according to their market value (capitalization), so that larger components carry a larger percentage weighting.

mvwi

Indexmvw - market value-weighted index

Ptoday - stock price today

Pbase year - stock price in a base year

Nshares out - number of shares outstanding

Indexbase - base year index value

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Preferred stock valuation

Preferred stock valuation formula determines the value of preferred stock using dividend and required rate of return on preferred stock.

psvm

P0 - initial price

Dp - preferred stock dividend

kp - required rate of return on preferred stock

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One period DDM

Dividend discount model (DDM) is a stock valuation that uses predicted dividends and discounts them back to present value. One period DDM assumes that your holding period is one year.

opsvm

P0 - initial price

D1 - expected dividend

P1 - year-end stock price

ke - required rate of return on common equity

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Infinite period DDM

Dividend discount model (DDM) is a stock valuation that uses predicted dividends and discounts them back to present value. Infinite period DDM assumes that dividends grow every year at the constant rate g.

ipm

or

ipm2

P0 - initial price

D1 - expected dividend

ke - required rate of return on common equity

g - expected growth rate

D0 - last year dividend

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Multistage DDM

Dividend discount model (DDM) is a stock valuation that uses predicted dividends and discounts them back to present value. In a multistage DDM we estimate all the dividends to be received as well as the selling price at the end of the holding period.

msm

where

msm2

P0 - initial price

D1 - expected dividend in year 1

D2 - expected dividend in year 2

Dn - expected dividend in year n

ke - required rate of return on common equity

Pn - price in year n

Dn+1 - dividend that will grow at the constant rate gc forever

gc - constant growth rate of dividends

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Earnings multiplier

Earnings multiplier is another variation on the P/E ratio.

ermu

P0 - initial price

D1 - expected dividend in year 1

E1 - expected earnings per share (EPS) in year 1

k - required rate of return on the stock

g - expected constant growth rate of dividends

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Expected growth rate

egr

g - growth rate

rr - retention rate (note that 1-rr = dividend payout rate)

ROE - return on equity

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Trailing P/E

Trailing P/E is P/E ratio, using earnings for the lasst 12 month.

trpe

P - share price

EPSpr - earnings per share over previous 12 months

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Leading P/E

Leading P/E is a measure of P/E ratio which uses forecasted earnings for the calculation.

lepe

P - share price

EPSf - forecast earnings per share over next 12 months

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P/BV ratio

P/BV ratio is used to compare a stock's market value to its book value.

pbv

Eqmkt - market value of equity

Eqbv - book value of equity

P - share price

BPS - book value per share

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P/S ratio

P/S ratio is a sales-based ratio for valuing a stock relative to its own past performance, other companies or the market itself. It's useful mainly when comparing similar companies.

psr

Eqmkt - market value of equity

Sales - company's sales or revenue

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P/CF ratio

P/CF ratio is another measure of stock's relative value. Because this measure deals with cash flow, the effects of depreciation and other non-cash factors are removed.

pcf

Eqmkt - market value of equity

CF - cash flow (adjusted CFO (cash flow from operations), FCFE (free cash flow to equity) or EBITDA (earnings before interest, tax, depreciation and amortization))

P - share price

CFPS - cash flow per share

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Adjusted CFO

Adjusted cash flow from operations is a CFO adjusted for after-tax interest cost.

acfo

CFOadj - adjusted cash flow from operations

CFO - cash flow from operation

CashIntOutnet - net cash interest outflow

t - tax rate

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