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    Formulae Sheet Financial Mathematics Valuation of Stocks and Bonds

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    Weiwei Huang
    This document provides formulas for valuing stocks and bonds, financial calculations related to annuities and perpetuities, capital budgeting techniques like NPV and IRR, cost of capital including WACC, risk management concepts like duration and convexity, modern portfolio theory including the capital asset pricing model (CAPM), and capital structure policies for corporations. Key calculations include present and future value of cash flows, yields on stocks and bonds, internal rate of return, weighted average cost of capital, beta, and the impact of taxes on optimal capital structure.

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    Formulae Sheet Financial Mathematics Valuation of Stocks and Bonds

    Uploaded by

    Weiwei Huang
    12 views2 pages
    This document provides formulas for valuing stocks and bonds, financial calculations related to annuities and perpetuities, capital budgeting techniques like NPV and IRR, cost of capital including WACC, risk management concepts like duration and convexity, modern portfolio theory including the capital asset pricing model (CAPM), and capital structure policies for corporations. Key calculations include present and future value of cash flows, yields on stocks and bonds, internal rate of return, weighted average cost of capital, beta, and the impact of taxes on optimal capital structure.

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    S1_2019_Exam_formulae_sheet

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    This document provides formulas for valuing stocks and bonds, financial calculations related to annuities and perpetuities, capital budgeting techniques like NPV and IRR, cost of capital including WACC, risk management concepts like duration and convexity, modern portfolio theory including the capital asset pricing model (CAPM), and capital structure policies for corporations. Key calculations include present and future value of cash flows, yields on stocks and bonds, internal rate of return, weighted average cost of capital, beta, and the impact of taxes on optimal capital structure.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    12 views2 pages

    Formulae Sheet Financial Mathematics Valuation of Stocks and Bonds

    Uploaded by

    Weiwei Huang
    This document provides formulas for valuing stocks and bonds, financial calculations related to annuities and perpetuities, capital budgeting techniques like NPV and IRR, cost of capital including WACC, risk management concepts like duration and convexity, modern portfolio theory including the capital asset pricing model (CAPM), and capital structure policies for corporations. Key calculations include present and future value of cash flows, yields on stocks and bonds, internal rate of return, weighted average cost of capital, beta, and the impact of taxes on optimal capital structure.

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    © All Rights Reserved
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    of 2

    FORMULAE SHEET

    Valuation of Stocks and Bonds


    Financial Mathematics
    𝐶𝑃𝑁
    𝐹𝑉𝑛 = 𝐶 × (1 + 𝑟)𝑛 𝐶𝑜𝑢𝑝𝑜𝑛 𝑟𝑎𝑡𝑒 × 𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒
    =
    𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑜𝑢𝑝𝑜𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
    𝐶
    PV = 1
    (1 + 𝑟)𝑛
    𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒 𝑛
    1 + 𝑌𝑇𝑀𝑛 = ( )
    𝐶1 𝐶2 𝑃𝑟𝑖𝑐𝑒
    PV = 𝐶0 + + +⋯
    (1 + 𝑟)1 (1 + 𝑟)2 1 1 𝐹𝑉
    𝐶𝑛 𝑃 = 𝐶𝑃𝑁 × (1 − )+
    + 𝑦 (1 + 𝑦) 𝑛 (1 + 𝑦)𝑛
    (1 + 𝑟)𝑛

    𝑃𝑉 𝑜𝑓 𝑎𝑛 𝑎𝑛𝑛𝑢𝑖𝑡𝑦
    𝐷𝐼𝑉1 𝐷𝐼𝑉2
    1 1 𝑃0 = + +⋯
    = 𝐶 × (1 − ) (1 + 𝑟𝐸 ) (1 + 𝑟𝐸 )2
    𝑟 (1 + 𝑟)𝑛
    𝑃 𝐷𝐼𝑉𝑛 𝑃𝑛
    𝐶= + 𝑛
    +
    1 1 (1 + 𝑟𝐸 ) (1 + 𝑟𝐸 )𝑛
    (1 )
    𝑟 − (1 + 𝑟)𝑛
    𝐷𝐼𝑉1 Constant growth
    𝑃0 = (永续的)
    𝐹𝑉 𝑜𝑓 𝑎𝑛 𝑎𝑛𝑛𝑢𝑖𝑡𝑦 𝑟𝐸 − 𝑔
    1
    = 𝐶 × ((1 + 𝑟)𝑛 − 1) 𝐷𝐼𝑉𝑡+1
    𝑟 𝑃𝑡 =
    𝑟𝐸 − 𝑔
    𝐶
    𝑃𝑉 𝑜𝑓 𝑔𝑟𝑜𝑤𝑖𝑛𝑔 𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦 = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠𝑡
    𝑟−𝑔
    𝐷𝐼𝑉𝑡 =
    𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔𝑡
    𝑃𝑉 𝑜𝑓 𝑔𝑟𝑜𝑤𝑖𝑛𝑔 𝑎𝑛𝑛𝑢𝑖𝑡𝑦 × 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑎𝑦𝑜𝑢𝑡 𝑟𝑎𝑡𝑒𝑡
    =𝐶
    1 1+𝑔 𝑛 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐺𝑟𝑜𝑤𝑡ℎ 𝑅𝑎𝑡𝑒
    × (1 − ( ) )
    𝑟−𝑔 1+𝑟 = 𝑅𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒
    × 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑛𝑒𝑤 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

    𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒 𝑉0 + 𝐶𝑎𝑠ℎ0 − 𝐷𝑒𝑏𝑡0


    𝑃0 =
    = (1 + 𝑟)𝑛 − 1 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔0

    𝐴𝑃𝑅 𝑚 也是equity 非constant growth的公式


    1 + 𝐸𝐴𝑅 = (1 + )
    𝑚
    𝑅𝑒𝑎𝑙 𝑅𝑎𝑡𝑒
    𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑟𝑎𝑡𝑒 − 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒
    =
    1 + 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒 相当于APR / m = [( 1 + EAR)^(1/m) ] - 1
    ≈ 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑟𝑎𝑡𝑒 − 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒

    𝐶1 𝐶2
    PV = + +⋯ equivalent n period discount
    (1 + 𝑟1 )1 (1 + 𝑟2 )2 rate
    𝐶𝑛
    +
    (1 + 𝑟𝑛 )𝑛
    Capital Budgeting
    Cost of Capital
    𝑁𝐶𝐹1 𝑁𝐶𝐹2
    NPV = 𝑁𝐶𝐹0 + 1
    + +⋯ 𝐷𝐼𝑉𝑝
    (1 + 𝑟) (1 + 𝑟)2
    𝑁𝐶𝐹𝑛 𝑅𝑝 =
    𝑃𝑃
    +
    (1 + 𝑟)𝑛
    𝐷𝐼𝑉1
    𝑁𝐶𝐹1 𝑁𝐶𝐹2 𝑟𝑒 = +𝑔
    𝑃𝐸
    0 = 𝑁𝐶𝐹0 + 1
    +
    (1 + 𝐼𝑅𝑅) (1 + 𝐼𝑅𝑅)2
    𝑁𝐶𝐹𝑛 𝑟𝑊𝐴𝐶𝐶 = 𝑟𝑒 𝐸% + 𝑟𝑝 𝑃% + 𝑟𝑑 (1 − 𝑇𝑐 )𝐷%
    +⋯+
    (1 + 𝐼𝑅𝑅)𝑛
    Risk Management
    𝑃𝑉
    𝐸𝐴𝐴 = 𝑃𝑉(𝐶𝑡 )
    1 1
    (1 )
    𝑟 − (1 + 𝑟)𝑛 𝐷𝑢𝑟𝑎𝑡𝑖𝑜𝑛 = ∑
    𝑡 𝑃
    ×𝑡

    𝑁𝑃𝑉
    𝑃𝐼 =
    𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒 𝑐𝑜𝑛𝑠𝑢𝑚𝑒𝑑 𝑃𝑒𝑟𝑐𝑒𝑛𝑡 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑉𝑎𝑙𝑢𝑒
    𝜀
    𝐹𝐶𝐹 = (𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐶𝑜𝑠𝑡𝑠 ≈ −𝐷𝑢𝑟𝑎𝑡𝑖𝑜𝑛 × 𝑟
    1+
    − 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛) 𝑘
    × (1 − 𝑇𝑎𝑥 𝑟𝑎𝑡𝑒)
    + 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 − 𝐶𝑎𝑝𝑒𝑥
    − 𝐶ℎ𝑎𝑛𝑔𝑒𝑠 𝑖𝑛 𝑁𝑊𝐶 𝐴 𝐿
    𝐷𝐸 = 𝐷𝐴−𝐿 = 𝐷𝐴 − 𝐷
    𝐴−𝐿 𝐴−𝐿 𝐿
    Risk and Return, CAPM
    Capital Structure Policy
    𝐷𝐼𝑉𝑡+1 + 𝑃𝑡+1 − 𝑃𝑡
    𝑅𝑡+1 =
    𝑃𝑡 V=D+E
    𝐷𝐼𝑉𝑡+1 𝑃𝑡+1 − 𝑃𝑡
    = +
    𝑃𝑡 𝑃𝑡 Capital Structure – No Tax World
    1
    𝑅̅ = (𝑅1 + 𝑅2 + ⋯ 𝑅𝑇 )
    𝑇 𝑉𝐿 = 𝑉𝑈
    1
    𝑉𝑎𝑟(𝑅) = ((𝑅1 − 𝑅̅ )2 + (𝑅2 − 𝑅̅ )2
    𝑇−1 𝐸 𝐷
    + ⋯ (𝑅𝑇 − 𝑅̅ )2 ) 𝑟𝑈 = 𝑟𝐸 + 𝑟𝐷
    𝐸+𝐷 𝐸+𝐷

    𝐸[𝑅𝑝 ] = 𝑤1 𝐸[𝑅1 ] + 𝑤2 𝐸[𝑅2 ] + ⋯ 𝐷


    𝑟𝐸 = 𝑟𝑈 + (𝑟 − 𝑟𝐷 )
    + 𝑤𝑛 𝐸[𝑅𝑛 ] 𝐸 𝑈

    𝑉𝑎𝑟(𝑅𝑝 )
    Capital Structure –Tax World
    = 𝑤12 𝑆𝐷(𝑅1 )2 + 𝑤22 𝑆𝐷(𝑅2 )2
    + 2𝑤1 𝑤2 𝐶𝑜𝑟𝑟(𝑅1 , 𝑅2 )𝑆𝐷(𝑅1 )𝑆𝐷(𝑅2 )
    𝑉 𝐿 = 𝑉 𝑈 +PV(Interest tax shield)
    𝐸[𝑅𝑖 ] = 𝑟𝑓 + 𝛽𝑖 (𝐸[𝑅𝑀𝐾𝑇 ] − 𝑟𝑓 ) 𝐷
    𝑟𝐸 = 𝑟𝑈 + (𝑟 − 𝑟𝐷 )(1 − 𝑇𝑐 )
    𝐸 𝑈
    𝛽𝑝 = 𝑤1 𝛽1 + 𝑤2 𝛽2 + ⋯ 𝑤𝑛 𝛽𝑛

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