test 3 formulas

  1. Value of a bond
    • PV of Principal + PV of interest
    • can use TVoM on calculator all at once entering years, yield, interest payments, principal on bond solve for PV
    • if semi annual years is x2, yield and interest payments are /2
  2. yield to maturity formula
    to use calculator look to find yield
  3. preferred stock formula
    • P=D/K
    • P is price
    • D is divident
    • K is rate of return
  4. common stock
    • P=D/(k-g)
    • p is price
    • d is dividend
    • k is rate of return
    • g is growth rate
  5. cost of debt - estimated Yield to Maturity
    • interest + [(principal-price)/#years]
    • divided by
    • .6(bond price)+.4(principal payment)

    multiply answer by 100 to get %
  6. cost of debt - Yield to maturity after tax
    Yield to Maturity X (1-tax rate)
  7. cost of new preferred stock
    • K = D/(P-F)
    • K is rate of return
    • P is price
    • D is dividend
    • F is flotation cost
  8. cost of new common equity
    • K = [D/(P-F)]+g
    • K is rate of return
    • P is price
    • D is dividend
    • F is flotation cost
    • g is growth rate
  9. Payback of debt
    • is the number of years to get back cost
    • if part of a year left needed/total payback for year
  10. NPV
    • is the sum of the PV of each cash inflow minus the cash outflow (initial investment)
    • or
    • use NPV on calculator
    • NPV(rate,-outlay,{inflows}{inflow counts})
  11. IRR
    • when NPV is equal to 0 so if
    • NPV is positive raise the rate
    • if NPV is negative lower the rate
    • or
    • calculator IRR (-outlay,{cash inflows}, {inflow counts})
  12. NPV w/ PI
    (NPV + outlay)/outlay
Card Set
test 3 formulas
test 3 formulas