ACFINA3 Formula Card

1.2 Determinants of interest rates

General equation of interest rate on an asset: ij* = f(RFR, IP, DRPj, LRPj, SCPj, MPj)
Nominal rate = real rate + inflation rate Inflation premium (IP)= nominal rate – real rate

1.3 Interest rates and price volatility

Change in price using D and MD:

Macaulay’s Duration: where (1+rb) = (1+ (APR/m))

Modified Duration = D/(1+rb) Effective duration = (P(1) - P(2)) / (2 x P(0) x Y)

Portfolio Duration= Change in price using CX:

Convexity:

2.1 Money Market

(Bank) discount yield Single payment yield / Money Bond equivalent yield (BEY)
market yield /CD equivalent yield or expected annualized yield

Effective annual return (EAR) Holding period yield (HPY) or Effective annual yield
holding period return (HPR)

 ACFINA3 Formula Card

2.2 Bond Market

G-spread= Corporate Bond yiled I-spread= Corporate Bond yiled OAS spread= Z-spread less
less treasury bond yield less interpolated treasury bond option value
yield
2.3 Mortgage Market
Mortgage period payment

Indifference (in no. of months) = Cost of discount/ Monthly savings

2.4 Stock Market

Price-weighted index Value-weighted index

2.5 Foreign Exchange Market
Net exposurei = (FX assetsi – FX liabilitiesi) + (FX boughti – FX soldi)
= net foreign assetsi + net FX boughti
= net positioni
Purchasing power parity

interest rate parity theorem

2.6 Derivative Securities Market
intrinsic value call option = max{P – X, 0}
intrinsic value put option = max{X – P, 0}
time value = max {premium – intrinsic value, 0}

Put-Call Parity:
C + PV(X) = P + S

 ACFINA3 Formula Card

3.2 Financial statements and analysis

ROE= Net Income/Stockholder’s Equity Past Due Ratio= Past due loans/ Gross TLP

ROA= Net Income/ Total Asset Gross NPL ratio= Gross NPL/ Gross TLP

EM= Total Asset/ Stockholder’s Equity NPA to gross asset NPA/ (Total Assets + Allowance
ratio= on NPA)

PM= Net Income/ Total Operating Cash to Deposits= Cash and Due from Banks/
Income (TOI) Deposits

AU= Total Operating Income/ Total Liquid Assets to (Cash and Due from Banks + Net
Asset Deposits= Financial Assets)/ Deposits

Interest expense ratio= Interest Loans to Deposits= Gross Loans/ Deposits

expense/ TOI

Provision for loan loss ratio= Provision Earning Asset Interest income/ Average
for loan losses/ TOI Yield= earning assets

Non-interest expense ratio= Non- Funding Costs= Interest expense/ Average

interest expense/ TOI interest bearing liabilities

Tax ratio= Income taxes/ TOI Interest spread= Earning asset yield – funding
cost

Interest income ratio= Interest income/ Net interest Annualized net interest income/
Total Asset margin= Average earning asset

Non-interest income ratio= Non-interest Capital to Total Total Capital/ Total Asset
income/ Total Asset Asset=

Overhead Non-interest income/ non-

efficiency= interest expense

3.3 Regulation of Phil. banks

Tier1 ratio = Tier1 capital/ Risk-weighted assets

CET1 ratio= CET1 capital/ Risk-weighted assets

NSFR:
 ACFINA3 Formula Card

4.1 Managing credit risk
gross debt service (GDS) Ratio = total debt service (TDS) Ratio =
(Annual mortgage payments + Property Annual total debt payments / Annual
taxes) / gross income gross income
Altman’s Z-score: Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
where X1 = working capital ÷ total assets; X2 = retained earnings ÷ total assets; X3 = earnings before
interest and taxes ÷ total assets; X4 = market value of equity ÷ book value of long-term debt; X5 = sales ÷
total assets
ROA approach:


4.2 Managing liquidity risk
Financing Requirement (or Borrowed Funds) =
Financing Gap + Liquid Assets
Liquidity index:

4.3 Managing interest rate and insolvency risk

Repricing Model: ΔNIIi = (RSAi – RSLi)ΔRi
Repricing Model spread effect: ΔNIIi = (RSAi x ΔRRSA) – (RSLi x ΔRRSL)

Duration Model: , where k = L/A