Finance Exam Enclosure: Formula Sheet Page 4
ADVERTISEMENT
1
2
3
4Continous compounding:
Corporate finance
D: value of debt. E: value of equity. V : value of firm. r :
r
required return on firm’s debt. r : required return on firm’s
e
d
q =
equity. τ : Tax rate. r: Firms interest rate. r required rate
u
d
of return for all-equity financed firm (unlevered firm).
No tax case:
r
C = e
(qC
+ (1
q)C
)
u
d
D
E
r
r = r
+ r
P = e
(qP
+ (1
q)P
)
D
E
u
d
D + E
D + E
r∆t
e
d
q =
D
E
u
d
β = β
+ β
D
E
D + E
D + E
r∆t
C = e
(qC
+ (1
q)C
)
u
d
WACC
Discrete compounding:
D
E
r = r
(1
τ )
+ r
D
E
1 + r
d
D + E
D + E
f
q =
u
d
D
r = r
1
τ
1
V
C =
(qC
+ (1
q)C
)
u
d
1 + r
f
Equity cost of capital
Inequalities
D
r
= r + (1
τ )(r
r
)
r(T t)
E
D
C
max(0, S
Xe
)
E
r(T t)
Portfolio calculations, vector form
P
max(0, Xe
S)
n assets with expected returns E[r ] and covariances
σ(r , r ). ω: weights.
Put call parity
r(T t)
c = p + S
e
X
E[r
]
1
X
E[r
]
2
c = p + S
=
. .
(T t)
(1 + r
)
f
.
Black–Scholes option price
E[r
]
n
Assume no payout from underlying. S: price of underly-
ing asset. X: eXercise price. r: interest rate (continously
σ(r
, r
) σ(r
, r
) . . .
compounded). σ volatility of underlying. T : maturity date.
1
1
1
2
(T
t): time to maturity.
σ(r
, r
) σ(r
, r
) . . .
2
1
2
2
=
. .
.
r(T t)
c = SN (d
)
Xe
N (d
)
σ(r
, r
)
. . .
σ(r
, r
)
1
2
n
1
n
n
S
1
2
ω
ln
+ r +
σ
(T
t)
1
X
2
d
=
1
ω
σ T
t
2
=
. .
.
d
= d
σ (T
t)
2
1
ω
n
r(T t)
p = Xe
N ( d
)
SN ( d
)
2
1
E[r
] =
p
z
1
1
2
y
N (z) =
e
dy
2
2
σ
(r
) =
2π
p
4
ADVERTISEMENT
0 votes
Related Articles
Related forms
Related Categories
Parent category: Education