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Calculating Value Added (by Fund Managers)

Given:

IR = annualized residual return / annualized residual risk = α/ɯ

risk aversion of investor = λ

Value Added = α – (λ * ɯ^2)

Maximum Value Added = IR^2 / 4λ

at Optimal Level of Risk = ɯ* = IR/2λ

 

How to calculate Pre Money Value, Post Money Value, Required Fraction of Ownership, Shares Required by Investor and Share Price using the VC method.

POST = FV / (1+r)^n

PRE = POST – INV

Required Fraction of Ownership = INV/POST

Investor Shares = Founder Shares (f/(1-f))

Stock Price Per Share = INV / Investor Shares

Pure Monetary Model

Purchasing Power Parity holds at any time and therefore an expansionary monetary policy results in an increase in inflation and a depreciation of the home currency.

Dornbusch overshooting model

A restrictive monetary policy leads to appreciation of the domestic currency in the short term and a slow depreciation toward the long-term PPP value.

An expansionary monetary policy leads to depreciation of the domestic currency in the short term and a slow appreciation toward the long-term PPP value.

Portfolio Balance Model (asset market approach)

Focuses on the long-term implications of sustained fiscal policy (deficit or surplus) on currency values.

When the government runs a fiscal deficit, it borrows money from investors. Under the portfolio balance approach, sustained fiscal deficits will lead to eventual depreciation of the home currency.

Expected Return on Plan Assets

Under U.S. GAAP assumed long-run rate of return on plan assets is used to smooth the volatility that would be caused by using actual returns.

Under IFRS expected rate of return on plan assets is implicitly equal to the discount rate used for computing PBO.

According to Research Objectivity Requirement 11, Rating System, can an employee communicate a rating or recommendation different from the current published one?

No

The research report must be updated, redistributed to all clients then revised recommendations can be publicly discussed by analysts.

Under Standard III(A) Loyalty, Prudence, and Care is a diversified portfolio required?

No, you must managed funds to the investment policy statement. Some clients investment objectives may not allow a diversified portfolio.

Return on Capital Employed (REOC)

Return on capital employed is a financial ratio that measures profitability.

ROEC = EBIT / Capital Employed

Capital Employed = Shareholder’s Equity + Debt OR Total Assets – Current Liabilities

For any bond for which the expected future spot rate(s) are higher than a quoted forward rate at the same maturity the bond is?

Overvalued

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