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The investor lives from time 0 to time T; their wealth at time T is denoted W T. He starts with a known initial wealth W 0 (which may include the present value of wage income). At time t he must choose what amount of his wealth to consume, c t , and what fraction of wealth to invest in a stock portfolio, π t (the remaining fraction 1 − π t ...
To calculate the relative strength of a particular stock, divide the percentage change over some time period by the percentage change of a particular index over the ...
To calculate 'impact of prices' the formula is: Impact of prices = option delta × price move; so if the price moves $100 and the option's delta is 0.05% then the 'impact of prices' is $0.05. To generalize, then, for example to yield curves: Impact of prices = position sensitivity × move in the variable in question
For example, if a stock increased by 5% because of some news that affected the stock price, but the average market only increased by 3% and the stock has a beta of 1, then the abnormal return was 2% (5% - 3% = 2%). If the market average performs better (after adjusting for beta) than the individual stock, then the abnormal return will be negative.
Capital allocation line (CAL) is a graph created by investors to measure the risk of risky and risk-free assets. The graph displays the return to be made by taking on a certain level of risk. Its slope is known as the "reward-to-variability ratio".
Cost of new equity should be the adjusted cost for any underwriting fees termed flotation costs (F): K e = D 1 /P 0 (1-F) + g; where F = flotation costs, D 1 is dividends, P 0 is price of the stock, and g is the growth rate. There are 3 ways of calculating K e: Capital Asset Pricing Model; Dividend Discount Method; Bond Yield Plus Risk Premium ...
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A split share corporation is a corporation that exists for a defined period of time to transform the risk and investment return (capital gains, dividends, and possibly also profits from the writing of covered options) of a basket of shares of conventional dividend-paying corporations into the risk and return of the two or more classes of publicly traded shares in the split share corporation.