Stand.deviation(page 105)Period123456Return ( Ri)151220(10)149Mean=AVERAGE(B2:G2)10.00Standard deviation=STDEV(B2:G2)10.4498803821

PV of uneven cash flow( page124Present Value of an Uneven Cash Flow StreamYear12345678Cash Flow1,0002,0002,0003,0003,0004,0004,0005,000Discount rate12%Present Value= NPV(C4,B3:I3)13,375

How much to save( page 127)How much should you save annually?Future value (FV)No. of years (NPER)Interest rate ( RATE)2,000,000512%Annual saving (PMT)= PMT(C3,B3,,-A3)314,819

Finding interest rate(page 128)Finding the Interest RateFuture value (FV)No.of years (NPER)Annual deposit (PMT)8,00061,000Interest rate= RATE(B3,-C3,,A3)11.43%

How long to wait(page 129)How long should you waitFuture cost(FV)Annual savings (PMT)Interest rate (RATE)1,000,00050,00012%Period of waiting in years= NPER(C3,B3,,-A3)10.80

How much to borrow(page131)How much can you borrow for a carPayment per month (PMT)No.of months (NPER)Interest rate ( RATE)12,000361.50%Loan amount=PV(C3,B3,-A3)331,928

Amortisation schedule(page 133)Present valueInterest rateNo. of instalments (in years)Annual instalment amount1,000,00015%5(298,316)YearBeginning amountAnnual instalmentInterestPrincipal repaymentRemaining balance11,000,000298,316150000148,316851,6842851,684298,316127753170,563681,1213681,121298,316102168196,148484,9734484,973298,31672746225,570259,4035259,403298,31638910259,406(3)

Periodic withdrawal(Page134)Initial deposit-300,000Interest rate10%=PMT(B2,B3,B148,824Period in years10

Covariance&Correlation(Page220)State of natureProbabilityReturn on security 1 ( %)Return on security 2 (%)10.1(10)520.3151230.3181940.2221550.12712If the two sets of returns are observed valuesCovariance=COVAR(C2:C6,D2:D6)43.8Coefficient of correlation=CORREL(C2:C6,D2:D6) =0.7Covariance=COVARPR(C2:C6,D2:D6,B2:B6) =26.0Coefficient of correlation=CORRELPR(C2:C6,D2:D6,B2:B6) =0.7NOTEIf observed values of returns for two securities for various periods are given, you can use the built-in functions in Excel, to calculate the covariance and correlation coefficients. When the values are forecasted ones based on probabilities, the built-in Excel functions can not be used. However you can download an open code software Excel Add-in named Sim Tools by downloading from site home.uchicago.edu/~rmyerson/addins.htm . The installation procedure and description of the various functions are given in the site. It should be noted that that the SIMTOOLS programs are distributed as freeware for individual use and may be freely redistributed to students and faculty in an academic institution and that all other rights are reserved. Simtools(3.31a) was developed at the Kellog School of Management, Northwestern University. Copyright 1996-2000 by R.B. Myerson

Illustration(Page 226)Expected ReturnStandard DeviationCoefficient of CorrelationSecurity A12%20%-0.2Security B20%40%PortfolioProportion of AProportion of BExpected ReturnStandard Deviation1(A)1012.00%20.00%20.90.112.80%17.64%30.7590.24113.93%16.27%40.50.516.00%20.49%50.250.7518.00%29.41%6(B)0120.00%40.00%Formula used for getting Expected Return in cell D5 =B5*$B$2+C5*$B$3Formula used for getting Standard Deviation in cell E5 =((B5^2)*$C$2^2+(C5^2)*$C$3^2+2*B5*C5*$D$2*$C$2*$C$3)^0.5

Two-security portolio(page 253)Expected ReturnStandard DeviationCoefficient of CorrelationSecurity A12%20%-0.2Security B20%40%PortfolioProportion of AProportion of BExpected ReturnStandard Deviation1(A)1012.00%20.00%20.90.112.80%17.64%30.7590.24113.93%16.27%40.50.516.00%20.49%50.250.7518.00%29.41%6(B)0120.00%40.00%Formula used for getting Expected Return in cell D5 =B5*$B$2+C5*$B$3Formula used for getting Standard Deviation in cell E5=((B5^2)*$C$2^2+(C5^2)*$C$3^2+2*B5*C5*$D$2*$C$2*$C$3)^0.5

Beta-Intercept-1(256)PeriodReturn on stock A(%)Return on market portfolio(%)11012215143181341410516961613718148479-911014121115-111214161368147715-810

Beta-intercept-2(page 256)SUMMARY OUTPUTRegression StatisticsMultiple R0.274R Square0.075Adjusted R Square0.004Standard Error8.619Observations15CoefficientsStandard Errort StatP-valueIntercept6.8133.8201.7830.098X Variable 10.3540.3451.0260.323

Bond price-YTM(page 323) Settlement1/1/06This is the date of purchase. If not certain fill in any dateMaturity12/30/13The formula in this case is=B3+365*8, as the maturity period is 8 yearsRate9%The annual coupon rateYield13.2%The required return per annumRedemption100Fill in the redemption value as a percentage of the par valueFrequency1This represents the number of times interest is paid in a yearBasis33 represents the day count convention :actual no.of days/365, in interest calculationPrice79.99To get the result in B8, use the function =PRICE(B1,B2,B3,B4,B5,B6,B7)Bond price is obtained per Rs.100 of the face value of the bond. Here, the redemption value beingRs. 1000, the price would be Rs.79.99 x 1000/100 = Rs.799.9 or Rs.800Given the bond price you can use the spreadshet to calculate the yield to maturity. In the aboveworksheet, if you type the Price as 80 in cell B8 and wish to calculate the yield to maturity in cell B4(of course all other data remaining unchanged), type =YIELD(B1,B2,B3,B8,B5,B6,B7) in cell B4 andpress enter any you will get the value as 13.2% in that cell. The cell references in the formula for theyield respectively stand for Settlement, Maturity,Rate, Price(per Rs.100).Redemption value(per Rs.100),Frequency and Basis.

Duration(page 352)Face value100Coupon payable per annum15%Years to maturity in years6=RATE(C3,C1*C2,-C5,C4)18%Redemption value100Current market price89.5SettlementAny date, if the date of purchase is not certain1/1/06Maturity=C6+365*C312/31/11=DURATION(C6,C7,C2,F3,C8,C9)4.254FrequencyNo. of times interest paid in a year1Basis3 represents the day count convention: actual no. of days/365 , in interest calculation3

Two-stage growth model(page 380Current dividend (D0)2No.of years of initial above-normal growth(n)6Rate of above-normal growth (g1)20%Stable growth rate(g2)10%Required raturn ( r)15%Dividend expected a year hence(D1)2.40Intrinsic value of the equity share (P0)=B6*((1-((1+B3)/(1+B5))^B2))/(B5-3)+((B6*((1+B3)^(B2-1))*(1+B4))/(B5-B4))/((1+B5)^B2)=70.76

H-Model(Page 382)Current dividend (D0)3Present growth rate ( ga)50%No. of years of linear decline in growth rate(H)10Stable growth rate(gn)12%Required rate of return ( r)16%Intrinsic value of the share(P0)=(B1*(1+B4)+(B3/2)*(B2-B4))/(B5-B4) =131.50

Moving average(page 471)Moving Average AnalysisTrading dayClosing price5 day moving average125.0226.0325.5424.5526.025.4626.025.6726.525.7826.525.9926.026.21027.026.4

Moving average(page 471)252625.524.52625.42625.626.525.726.525.92626.22726.4

ActualForecastTrading dayClosing priceMoving Average

Black-Scholes formula(page507)Price of stock now, S060Exercise price, E56Standard deviation of continuously compounded annual return 0.3Years to maturity, t0.5Interest rate per annum r0.14d1=(LN(C1/C2)+(C5+(C3^2)/2)*C4)/(C3*(C4^0.5))0.7613d2=C6-C3*(C4^0.5)0.5492Equilibrium value of call option now, C0= C1*NORMSDIST(C6)-(C2/EXP(C5*C4))*NORMSDIST(C7)9.61

Portfolio measures(page 621))FundMean returnStandard deviationBetaTreynor MeasureSharp MeasureJensen MeasureM2 MeasureA17.128.11.27.0830.3025.6203.801B14.519.70.926.4130.2993.6923.740C1322.81.044.2310.1931.9041.556Market Index1120.512.4000.1170.0000.000Risk-free return8.600Formula used for getting Treynor measure in cell E2 =(B2-$B$6)/D2Formula used for getting Sharp measure in cell F2 =(B2-$B$6)/C2Formula used for getting Jensen measure in cell G2 =B2-($B$6+D2*($B$5-$B$6))Formula used for getting M2 measure in cell H 2 =(($C$5/C2)*B2+(1-$C$5/C2)*$B$6)-$B$5

Portfolio composition(page 633)Portfolio composition for Constant Mix and CPPI policiesProportion of stocks in the portfolio in Constant Mix policy50%Multiplier in CPPI policy2Floor value in CPPI policy75,000Constant Mix PolicyCPPI PolicyMarket levelStocksBondsTotalStocksBondsTotal10050,00050,000100,00050,00050,000100,000(Formulae used)B5*(1-$B$2)/$B$2B5+C5E5+F58045,00045,00090,00030,00060,00090,000(Formulae used)(B5*A7/A5+C5)*$B$2B7*(1-$B$2)/$B$2B7+C7$D$2*(E5*(A7/A5)+F5-$F$2)(E5*(A7/A5)+F5)-E7E7+F710050,62550,625101,25045,00052,50097,500(Formulae used)(B7*A9/A7+C7)*$B$2B9*(1-$B$2)/$B$2B9+C9$D$2*(E7*(A9/A7)+F7-$F$2)(E7*(A9/A7)+F7)-E9E9+F9