Financial Analysis
Financial Analysis
Financial Analysis
Kartei Details
| Karten | 288 |
|---|---|
| Sprache | English |
| Kategorie | Finanzen |
| Stufe | Universität |
| Erstellt / Aktualisiert | 06.01.2017 / 10.03.2017 |
| Weblink |
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Effective Duration
calc
Approximate percentage change in price due to duration referred to as duration effect
calc
-D x (deltay) x 100
Given is a 15-year option-free bond with annual coupon of 7% trading at par.
Compute the bond‘s duration if interest rates rise and fall by 50 basis points (±0,5%) and estimate the price change if yields fall or rise by 150 basis points (duration effect)
- As we know that V0 = 100, by applying the bond pricing formula, we obtain
V- = 104,701
V+ = 95,586
- Therewith, the effective duration is calculated 1)
- Hence, for a 100 basis point (1%) change in required yield, the expected price change is 9,115%.
- Approximate percentage change in price (duration effect)
For a 150 BP drop in yield is 2)
For a 150 BP increase in yield is 3)
- The larger the change in yield, the larger the approximation error (due to curvature of the price path convexity)
Convexity of price-yield relationship
Convexity of price-yield-relationship
calc
Percentage change in price due to convexity,referred to as convexity effect
calc
- 15-year option-free bond with annual coupon of 7% trading at par
- interest rates rise and fall by 50 basis points (±0,5%)
- calc: convexity, convexity effect
Short-term solvency ratios
(Measure..., names)
Short-term solvency ratios measure the ability of liquidation of short-term assets
– Current ratio
– Acid-test ratio
Current ratio
formula
CR = CA / CL
where CA = current assets
CL = current liabilities
Acid-test ratio
ATR = (CA- I) / CL
where CA = current assets
I = inventories
CL = current liabilities
Capitalization (financial leverage) ratios (2)
– Long-term debt-to-capitalization ratio
– Total debt-to-capitalization ratio
Long-term debt-to-capitalization ratio
formula
LTDR = LTD / ( LTD + MI + EQ + CL )
where LTD = long term debt
MI= minority interest
EQ = common and preferred equity
CL = current liabilities
Total debt-to-capitalization ratio
formula
TDR = ( CL + LTD ) / ( LTD + MI + EQ + CL )
where CL = current liabilities
LTD = long-term debt
MI = minority interest
EQ = common and preferred equity
Coverage ratios (interest expenses include capitalized interest) (2)
- EBIT coverage ratio
- EBITDA coverage ratio
EBIT coverage ratio
EBIT coverage = EBIT / I
where I = annual interest expenses
EBITDA coverage ratio
EBITDA coverage ratio = EBITDA / I
where I = annual interest expenses
EBIT coverage = 750 / 110 = 6,8
EBITA coverage =( 750 + 150 ) / 110 = 8,2
FOCF coverage = ( 500 + 110 ) / 110 = 5,5
Ratios to assess Convertible Bonds
Conversion price
formula
CP = issue price of bond / CR
Ratios to assess Convertible Bonds
Conversion ratio (CR)
expl
Conversion ratio (CR) is the number of common shares for which a convertible bond can be exchanged
Ratios to assess Convertible Bonds
Conversion value
CV = market price of stock x CR
Ratios to assess Convertible Bonds
Market conversion price
formula
MCP = market price of convertible / CR
Ratios to assess Convertible Bonds
Market conversion premium per share
formula
MCPPS = MCP - market price of stock
Ratios to assess Convertible Bonds
Market conversion premium ratio
formula
MCPR = MCPPS / market price of stock
Ratios to assess Convertible Bonds
Premium over straight value
formula
POSV = market price of convertible / straight value
Given is a convertible with a 7% coupon, issued at par at USD 1.000, currently selling at USD 985, conversion ratio of 25
and a straight value of USD 950. The common share is currently at USD 35, paying USD 1 per share dividend.
Determine
a) Conversion price
b) Conversion value
c) Minimum value
d) Market conversion price
e) Market conversion premium per share
f) Market conversion premium ratio
g) Premium over straight value
Given is a convertible with a 7% coupon, issued at par at USD 1.000, currently selling at USD 985, conversion ratio of 25 and a straight value of USD 950. The common share is currently at USD 35, paying USD 1 per share dividend.
Assumed that the stock increases to USD 45 per share, calculate
a) Return from investing in convertible
b) Return from investing in stock
Given is a convertible with a 7% coupon, issued at par at USD 1.000, currently selling at USD 985, conversion ratio of 25 and a straight value of USD 950. The common share is currently at USD 35, paying USD 1 per share dividend.
Assumed that the stock decreases to USD 30 per share, calculate
a) Return from investing in convertible (assuming that the straight value did not change, the bond value will trade at USD 950)
b) Return from investing in stock
What is most accurate? A derivative
Which statement is false? Exchange traded securities
Arbitrage prevents
Equity forward
– Forward contract where the underlying asset is a single
stock or a portfolio of stocks, e.g. an index
– The stock seller can lock in the selling price of the shares
– Example: Forward contract on five stocks with a agreed upon (forward) price of $525,2 per stock in 100 days; the forward will be settled in cash. After 100 days the stock price is $535,7 --> pament for long position?
Payment = (535,7 - 525,2) x 5 = 52,5
Forward Rate Agreement (FRA)
settlement in 30 days, notional amount of EUR 1 Mio. borrowed for 90 days, based on 90 day LIBOR, specified rate of 5%. Assume that at settlement current 90-day LIBOR is at 6% --> market rate > specified rate -> long is positive
- Interest saving until end of the 90-day loan ?
- cash settlement ?
Party A (long) will receive EUR 50 Mio. in 3 months and enters into a cash settlement currency forward with party B (short) to exchange EUR for USD at USD 1,03 per EUR. The market exchange rate at settlement is USD 1,05 per EUR
- long position at settlement ?
The short in a deliverable forward contract
Consider a USD 2 million FRA with a contract rate of 6% on 60-day Libor. If 60-day LIBOR is 7 % at settlement, the long will
A dealer in the forward contract market
Example Margin Balance
- Long position of five wheat contracts and each contract covers 5.000 bushels
- Each contract requires initial margin of $150 and maintenance margin of $100
- Compute margin balance positions for a two-tick price decrease (per bushel) on day one, a one-tick increase on day two and a one-tick decrease on day three
Loss on day 1
= 5 x 5000 x (-$0.02) = -$500
The daily process of adjusting the margin in future account is called
In future markets, the clearinghouse does all of the following except
