Calculating Portfolio Risk
If you need to find out the standard deviation, take the square root of the answer. Variance, leave it squared. Book Rate of Return
Payback & Discounted Payback Period
Nonconstant growth valuation stock
Internal rate of return  IRR
Pitfall 4 – What Happens When There is More than One Opportunity Cost of Capital Term Structure Assumption We assume that discount rates are stable during the term of the project. This assumption implies that all funds are reinvested at the IRR. This is a false assumption. Covariance of multiple stocks
Efficient Frontier 
Present Value of a Growing Perpetuity
Bond Valuation
DPS Calculation
Sharpe Ratio = (rrf)/(σ)
Ratio of risk premium to standard deviation. Measures riskadjusted performance of investment managers SMLThe Yintercept of the SML is equal to the riskfree interest rate. The slope of the SML is equal to the market risk premium and reflects the risk return trade off at a given time. where: E(Ri) is an expected return on security E(RM) is an expected return on market portfolio M β is a nondiversifiable or systematic risk RM is a market rate of return Rf is a riskfree rate Efficient Frontier

Stock Returns
CAPM = Capital Asset Pricing Model
Beta is the extent to which a stock moves with the market. CAPM says that the higher the Beta, the higher the risk Market Efficiency
Efficient Market  Market in which information is reflected in stock prices quickly + correctly Profitability Index
Another Example  continued Proj NPV Investment PI A 230,000 200,000 1.15 B 141,250 125,000 1.13 C 194,250 175,000 1.11 D 162,000 150,000 1.08 Select projects with highest Weighted Avg PI WAPI (BD) = 1.13(125) + 1.08(150) + 0.0 (25) (300) (300) (300) = 1.01 Captal Rationing
Market Risk premium
For any investment, we can find the opportunity cost of capital using the security market line. With = 0.8, the opportunity cost of capital is: r = rf + B(rm – rf) r = 0.04 + [0.8 B (0.12 – 0.04)] = 0.104 = 10.4% The opportunity cost of capital is 10.4% and the investment is expected to earn 9.8%. Therefore, the investment has a negative NPV. If return is 11.2% What is Beta? r = rf + (rm – rf) 0.112 = 0.04 + (0.12 – 0.04) = 0.9 
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FIN 531 Corporate Finance Cheat Sheet by deluded1
FIN 531 MidTerm Cheat Sheet
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