RETURN:

Current income: Periodic payments, such as dividend or interest

Capital gain:Appreciation value, the gain from selling an investment for more than the purchase price
Total Return:Sum of the current income and capital gain (or loss) earned on an investment
Total Percentage Return = [Income + (End of Period Value – Initial Value) ]/ Initial Value

Expected Return: P(A) * % Earning

Risk Premium= Expected return –risk free rate

RISK: (Risk - Return trade off)

Measuring Risk – Standard Deviation

_
∑𝒏 𝟐 _
𝒊=𝟏(𝒓𝒊 −𝒓)
𝝈  = √ 𝒏−𝟏
ri- Return at year I, 𝑟 − Average return

PORTFOLIO:

Expected return of a Portfolio:

n

𝐸𝑅𝑝 = ∑(𝑤𝑖 × 𝐸𝑅𝑖 )

i=1

Risk of a Two-Asset Portfolio

𝝈𝒑 = √(𝒘𝑨 )𝟐 (𝝈𝑨 )𝟐 + (𝒘𝑩 )𝟐 (𝝈𝑩 )𝟐 + 𝟐(𝒘𝑨 )(𝒘𝑩 )(𝑪𝑶𝑽𝑨,𝑩 )

Covariance

𝝈𝒑 = √𝝈𝟐𝑨 𝒘𝟐𝑨 + 𝝈𝟐𝑩 𝒘𝟐𝑩 + 𝟐𝒘𝑨𝒘𝑩 𝝆𝑨,𝑩 𝝈𝑨 𝝈𝑩

Rho A, B : Correlation coefficient

Market risk (which can't be diversified) - systematic

Diversifiable risk, which can be eliminated by diversification in a portfolio - unsystematic

Total risk = Systematic risk + Unsystematic risk

% change in stock prices


% change in index prices

Sales
Less: COGS
Less: Depreciation
PBIT
Less: Interest
PBT
Less: Taxes
PAT
Add back- Depreciation
Add back- Interest
Less-Increase in WC investment
Less- Increase in mandatory capital expenses
Cash Flow

Future Value of single: FVn  PV (1  r )n  PV  FVFr ,n

 1  i n  1
Future Value of Series: FVseries/annuity  A    : Annuity due multiply by (1+i)
 i 
 1  i n  1
Present Value of Series: PVseries/annuity  A   n 
: Annuity due multiply by (1+i)
 i1  i  
Present Value of perpetuity = A/i
m
 i
EIR  1    1
 m
2x = 30, x=ln(2)/ln(30)
(1+r)12 =2 , 1+r = 21/12

Payback- how much needed/how much paid

PV of cash inflows
PI 
PV of cash outflows