Asset Pricing Models and Bond Valuation Essentials
Capital Asset Pricing Model (CAPM)
The Capital Asset Pricing Model (CAPM) defines the relationship between systematic risk and expected return for assets, particularly stocks.
- Expected Return of Asset: Risk-Free Rate + Beta × (Market Return – Risk-Free Rate)
- Beta Formula: Beta = Covariance(Asset Return, Market Return) / Variance(Market Return)
- CAPM Regression: (Asset Return – Risk-Free Rate) = Alpha + Beta × (Market Return – Risk-Free Rate)
- Alpha Formula: Alpha = Actual Expected Return – CAPM Predicted
NPV, IRR, Discounting and Amortisation Concepts for Finance
ST226 Written Answer Cheat Sheet (Plain Text)
Net Present Value (NPV) and Its Interpretation
NPV represents the present value of all future net cash flows minus the initial cost. A positive NPV indicates value creation at the chosen discount rate. A negative NPV indicates value destruction.
Why Discounting Is Required
Discounting is required because money received in the future is worth less than money now. Discounting converts future amounts into their equivalent today. The discount rate reflects the
Read MoreCálculos Financieros Hoteleros y de Restaurante: BEP, EBITDA y Cash Flow
Cuadro de Premisas
- 1 – Days
- 2 – Available rooms per month o puede ser directamente 365 dependiendo de cómo lo desglose = Número de rooms * days
- 3 – %OCC
- 4 – Rooms sold = Available rooms * OCC
- 5 – ADR → Si no me lo da es = ingreso por hab / hab vendidas
- 6 – Room Revenue = ADR * Rooms sold
- 7 – Additional revenues / incomes = Room revenue * el porcentaje de other income o sales
- 8 – Total Revenues / incomes = Add. revenues + Room revenue
Cálculo de los Costes Variables
Ahora se calculan los total variable
Essential Time Value of Money Calculations and Financial Formulas
1. Simple vs. Compound Interest Calculation (4 Years)
Scenario: 4 years at 3% on a principal of $1,330.
Simple Future Value (FVs): FVs = P(1 + rt) = 1330(1 + 0.03 · 4) = $1,489.60.
Compound Future Value (FVc): FVc = P(1 + i)n = 1330(1.03)4 = $1,496.93.
Extra Interest Earned: FVc – FVs = $7.33.
2. Comparing Simple and Compound Interest in Year 10
Scenario: Calculating interest earned in the 10th year (7% on $2,800 principal).
Simple Interest: Yearly interest = 2800 × 0.07 = $196.
Compound Interest in Year
T+1 Settlement Cycle: Clearing Process in Indian Capital Markets
Introduction to Clearing and Settlement
Clearing and settlement is the backbone of the securities market. It ensures that every trade executed on the stock exchange is completed safely and efficiently – the buyer receives the securities and the seller receives the funds. In India, the equity market follows a T+1 rolling settlement cycle, meaning settlement takes place one working day after the trade date.
The 7-Step Settlement Cycle
Step 1: Trade Execution (T Day)
The process begins when an investor
Read MoreFinancial Derivatives: Options and Futures Pricing Problems
Interest Rates, Forwards, and Futures Contracts
Alba, having worked all summer, would like to deposit her money to earn extra income. A bank offers her 5% compounded semiannually. A friend starting a new business offers her 4.92% compounded quarterly. Which option is better and why?
Solution: We compare the effective annual rates.
- Bank Offer: \((1 + \frac{0.05}{2})^2 – 1 = 5.0625\%\)
- Friend’s Offer: \((1 + \frac{0.0492}{4})^4 – 1 \approx 5.012\%\)
The first option is better because it yields a higher