• Total return from equity investment = Dividend income + Capital gain (or loss)

• Dividend yield = D(t+1) / Pt

where Pt is the buying price of equity shares at time t and D(t+1) is the amount of dividend to be
received in the next year

 Capital gains yield= [P(t+1) – Pt] / Pt

 Total Yield = [Dividend + (Selling Price – Buying Price)] / Buying Price
 Expected return on a portfolio= E (Rp) = 1 * E (R1) + 2 * E (R2) + …+ n * E (Rn)

where E (Rp) is the expected return from the portfolio of assets and E (Ri) represents the expected
return from the ith asset and i is the weight of the ith asset in the portfolio

 CAPM Model: E(Rs) = Rf + s [E(Rm ) – Rf]

Where,
E(Rs) = Expected rate of return of the security
E(Rm) = Expected rate of return of the market
Rf = Risk free rate of return
s = Beta coefficient of the security
(E(Rm) – Rf) is the Equity Market Risk Premium

 s = (s,m)* s / m
s = standard deviation of return of the security
m = standard derivation of return of the market
(s,m) = coefficient of correlation between
returns of the security and the market

 Portfolio beta= p = ∑ i* i over all securities

 Sharpe Ratio:
RP - Rf
Sharpe ratio 

where,
R P  Average return of the portfolio
R f  Risk - free rate
  Standard deviation of returns
 Alpha of a security over a period= Actual return – CAPM-based return
 𝜎 = 𝜎 +𝜎 +2∗𝜌∗𝜎 ∗𝜎

Where TR= Total Risk

SR= Systematic Risk
USR= Unsystematic Risk

 Ke = [Do*(1+g) /Po] + g
Po = Current value of the equity share
Do = Dividend per share paid at time 0
g= Constant rate of growth of dividends
Ke= Cost of the retained earnings
  Kat= (1-t) * Kbt

where Kat is the post-tax cost, Kbt is the pre-tax cost and t is the rate of corporate income tax

 WACC = We * Ke + Wp * Kp + Wd * Kd * (1-t)
where,
We = Proportion of equity in the total capital
Wp = Proportion of preference shares in the total capital
Wd = Proportion of debt in the total capital
Ke = Cost of retained earnings / external equity
Kp = Cost of preference capital
Kd = Pre-tax cost of debt
t = corporate tax rate
and We + Wp + Wd = 1.0

 Percent Spread (PS)= (Ask price – Bid price )/Ask price*100

 Forward Premium or Discount= (Forward rate – Spot rate )/ Spot rate*(360/Forward
contract days)*100
et 1  ih 
t


e0 1  i f t


Where et= future spot rate

e0= spot rate
ih= home inflation
if= foreign inflation
t= the time period

 Real Exchange Rates:

(1  i f ) t

e t
'
 e t
(1  i h ) t

 Interest Rate Parity:

F

1  r h 
S 1  r f 
Where F is the forward rate and S is the spot rate