SELECTED FORMULA LIST

HPR

PSell PBuy
PBuy

Holding Period Return:

CAPM:

Dividend
= Capital gain yield + Dividend yield
PBuy

Ri = Rf + (Rm-Rf)* i

Present Value of a Mortgage:

1 1 (1 r )t
PV PMT

Net Foreign Exchange Exposure: Net exposure = (FX assets FX liabilities) + (FX bought FX sold)

Purchasing Power Parity (PPP):

IPUS IPS SUS / S / SUS / S

Interest Rate Parity Theorem (IRPT):

1 iUSt (1 / St ) (1 iUKt ) Ft

Black-Scholes Model:

C N (d1 ) S E (e rT ) N (d 2 )
d1

ln( S / E ) (r 2 / 2)T
T

d 2 d1 T
C = the call options price
S = the underlying asset price
E = Exercise price of the option
T = Time to Expiry
2 = Continuous annual variance of the underlying spot price
rf = continuously compounded annual risk free rate
N(dx) = value of the cumulative normal density function for the value d1 or d2 respectively.
Put Call Parity:

P0 = C0 - S0 + (E e-rT)

The Binomial Model for Pricing Options:

h = (Cu-Cd)/(Su-Sd) = (max(Su-E,0)-max(Sd-E,0))/(Su-Sd)
C = [Cu(r-d)/(u-d) +Cd(u-r)/(u-d)] /(1+r)
or
C = [pCu + (1-p)Cd]/(1+r) where p= (r-d)/(u-d)
Commercial Banks:
N

n 1

NI rn An rm Lm P NII NIE T

ROE

net income
total assets

ROA EM
total assets total equity capital

ROA = PM x AU

NIM = (net interest income) / (earning assets)

Spread

interest income
interest expense

earning assets interest - bearing liabilitie s

Overhead efficiency

noninterest income
noninterest expense

The Normal Distribution

- Area under the curve from - to d [N(d)]

N(d)

N(d)

N(d)

-3.00
-2.95
-2.90
-2.85
-2.80
-2.75
-2.70
-2.65
-2.60
-2.55
-2.50
-2.45
-2.40
-2.35
-2.30
-2.25
-2.20
-2.15
-2.10
-2.05
-2.00
-1.95
-1.90
-1.85
-1.80
-1.75
-1.70
-1.65
-1.60
-1.55
-1.50
-1.45
-1.40
-1.35
-1.30
-1.25
-1.20
-1.15
-1.10
-1.05
-1.00

0.0013
0.0016
0.0019
0.0022
0.0026
0.0030
0.0035
0.0040
0.0047
0.0054
0.0062
0.0071
0.0082
0.0094
0.0107
0.0122
0.0139
0.0158
0.0179
0.0202
0.0228
0.0256
0.0287
0.0322
0.0359
0.0401
0.0446
0.0495
0.0548
0.0606
0.0668
0.0735
0.0808
0.0885
0.0968
0.1056
0.1151
0.1251
0.1357
0.1469
0.1587

-1.00
-0.95
-0.90
-0.85
-0.80
-0.75
-0.70
-0.65
-0.60
-0.55
-0.50
-0.45
-0.40
-0.35
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00

0.1587
0.1711
0.1841
0.1977
0.2119
0.2266
0.2420
0.2578
0.2743
0.2912
0.3085
0.3264
0.3446
0.3632
0.3821
0.4013
0.4207
0.4404
0.4602
0.4801
0.5000
0.5199
0.5398
0.5596
0.5793
0.5987
0.6179
0.6368
0.6554
0.6736
0.6915
0.7088
0.7257
0.7422
0.7580
0.7734
0.7881
0.8023
0.8159
0.8289
0.8413

1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
1.60
1.65
1.70
1.75
1.80
1.85
1.90
1.95
2.00
2.05
2.10
2.15
2.20
2.25
2.30
2.35
2.40
2.45
2.50
2.55
2.60
2.65
2.70
2.75
2.80
2.85
2.90
2.95
3.00

0.8531
0.8643
0.8749
0.8849
0.8944
0.9032
0.9115
0.9192
0.9265
0.9332
0.9394
0.9452
0.9505
0.9554
0.9599
0.9641
0.9678
0.9713
0.9744
0.9772
0.9798
0.9821
0.9842
0.9861
0.9878
0.9893
0.9906
0.9918
0.9929
0.9938
0.9946
0.9953
0.9960
0.9965
0.9970
0.9974
0.9978
0.9981
0.9984
0.9987