UNIVERSITY OF THE COMMONWEALTH CARIBBEAN
SCHOOL OF BUSINESS, ENTREPRENEURSHIP &
MANAGEMENT
FIN302 PORTFOLIO MANAGEMENT FORMULA SHEET
Expected Return:
Variance:
Standard Deviation:
Covariance:
Correlation Coefficient:
Portfolio Expected Return:
Two-Asset Portfolio
Variance:
Security Market Line (SML):
Page 1 of 4
Beta:
Multiperiod DDM: Vo = D1 +
(1+r)1
D2 +………………..+ Dn + Pn
(1+r)2
(1+r)n
H – Model: V0 = [ D0 x (1+gl)] + [D0 x H(gs-gl)]
r-gl
g = (net income – dividends) x (net income) x ( Sales
) x (Total assets )
net income
Sales
Total assets
Stockholder’s equity
Firm Value = FCFF discounted at WACC
Equity Value = FCFE discounted at the required return on equity
FCFF = NI + NCC + [Int x (1-tax rate)] – FCInv - WCInv
FCFF = [EBIT x (1-tax rate)] + Dep – FCInv - WCInv
FCFF = [EBITDA x (1-tax rate)] + (Depx tax rate) – FCInv - WCInv
FCFF = CFO + [Int x (1-tax rate)] – FCInv
FCFE = FCFF - [Int x (1-tax rate)] + Net Borrowing
FCFE = CFO – FCInv + Net Borrowing
FCFE = NI – [(1 – DR) x (FCInv – Dep)] – [(1 – DR) x (WCInv]
WACC = (We x r) + Wd x rd x (1- Tax rate)
Page 2 of 4
Value of Firm = FCFF1
WACC – g
= FCFF0 x (1 + g)
WACC - g
Value of Equity = FCFE1
r–g
= FCFE0 x (1 + g)
r-g
EVA = NOPAT - (WACC x Capital)
MVA = Market Value of the firm’s capital – Capital
Page 3 of 4
Jensen\'s Alpha = Portfolio Return – Benchmark Portfolio Return
The Sharpe ratio can be easily defined as:
(Portfolio Return – Risk-Free Rate) / Standard
Deviation
The Treynor measure, also known as the reward to volatility ratio,
can be easily defined as:
(Portfolio Return – Risk-Free Rate) / Beta
Page 4 of 4