Today’s Post will be a ongoing project that is focused on Math All Finance Professionals need to master. I feel I do need to share this next part. This Post is not meant to be a Mathematicians Whiteboard. Not the best written. Just the way I communicate. TIA.

This page is ongoing so please check back periodically for more math.

The First Calculation I would like to introduce is “Total Return”.

Total Return

Let’s complete a Formula on Total Return,

One Thousand shares of P&G are purchased at $32 dollars per share and Sold back into the Market at $28 dollars per share. A Cash dividend was paid to you the investor of $3 annually. What is your Total Return?

Take $32 – $28 = -4

Then we will take our -$4 and then add our Dividend of $3 which Equals = $1

Then We take our $1 and divide by / our original $32 which equals? = 0.03125

For Keeping things simple we also need to take our answer of 0.03125 and multiply by 100 for our answer.

Equals? = Negative -3.12% is our Total Return. ” You Lost Money”

Easy Enough? Good!

Current Yield

Current Yield is what you take Home vs. What you spent on the Bond Investment.

Let’s say you buy 1 one 8% Insight Corp. Corporate Debenture / Bond, it’s trading at 102. (YOU SHOULD KNOW ALL BOND’s START AT PAR. PAR=$1000 investment) So that means you spent $1000 on your bond.

The Bond is trading at 102 on the Secondary Market.

Your Annual Coupon (Annual Coupon = Yearly Payment for buying Bond) is $80.

Annual Coupon 80 then we divide by our 102 (102 = PAR plus 20: 1020) 1020.

Our Current Yield is?

80/1020 = (7.8%)current yield

SHARPE RATIO

Named after American economist, William Sharpe, the Sharpe Ratio (or Sharpe Index or Modified Sharpe Ratio) is commonly used to gauge the performance of an investment by adjusting for its risk.

The higher the ratio, the greater the investment return relative to the amount of risk taken, and thus, the better the investment. The ratio can be used to evaluate a single stock or investment, or an entire portfolio.

Sharpe Ratio Formula

Sharpe Ratio = (Rx – Rf) / StdDev Rx

Where:

• Rx = Expected portfolio return
• Rf = Risk-free rate of return
• StdDev Rx = Standard deviation of portfolio return (or, volatility)

To Be Continued…..JS