Formulae

Modigliani and Miller Proposition 2 (with tax)

k e = kie + (1 T)(kie k d )

Vd
Ve

Two asset portfolio

sp = w2a s2a + w2b s2b + 2wawbrab sasb

The Capital Asset Pricing Model

E(ri ) = Rf + i (E(rm ) Rf )
The asset beta formula

V (1 T)

Ve
d
a =
e +
d
(Ve + Vd (1 T)) (Ve + Vd (1 T))

The Growth Model

Po =

Do (1 + g)
(re g)

Gordons growth approximation

g = bre

The weighted average cost of capital

V

e
d
ke +
k (1 T)
WACC =
Ve + Vd
Ve + Vd d

The Fisher formula

(1 + i) = (1 + r)(1+h)

Purchasing power parity and interest rate parity

S1 = S0 x

(1+hc )

F0 = S0 x

(1+hb )

(1+ic )
(1+ib )

Modified Internal Rate of Return

1

PV n
MIRR = R 1 + re 1
PVI

The Black-Scholes option pricing model

c = PaN(d1) PeN(d2 )e rt
Where:
d1 =

ln(Pa / Pe ) + (r+0.5s2 )t
s t

d2 = d1 s t
The Put Call Parity relationship
p = c Pa + Pee rt

[P.T.O.

  

       


   
      
  









































 








































 








 





























 




























 




























 




























































 



 










 










 









































 







 






 
























 






 



































































 



























 






























 















































 

       



  

   
    
  





























 












 

 





 




 



 








 
























 







 




 







 

















 












 



 





























 
 









 
 

 


























 













 






























































 
 






 

 



 









 











 

















 








 



 


 


 


 








































 





























 
 


















 
 

 












 
 


















 











End of Question Paper

9


Standard normal distribution table

00
01
02
03
04

000
00000
00398
00793
01179
01554

001
00040
00438
00832
01217
01591

002
00080
00478
00871
01255
01628

003
00120
00517
00910
01293
01664

004
00160
00557
00948
01331
01700

005
00199
00596
00987
01368
01736

006
00239
00636
01026
01406
01772

007
00279
00675
01064
01443
01808

008
00319
00714
01103
01480
01844

009
00359
00753
01141
01517
01879

05
06
07
08
09

01915
02257
02580
02881
03159

01950
02291
02611
02910
03186

01985
02324
02642
02939
03212

02019
02357
02673
02967
03238

02054
02389
02704
02995
03264

02088
02422
02734
03023
03289

02123
02454
02764
03051
03315

02157
02486
02794
03078
03340

02190
02517
02823
03106
03365

02224
02549
02852
03133
03389

10
11
12
13
14

03413
03643
03849
04032
04192

03438
03665
03869
04049
04207

03461
03686
03888
04066
04222

03485
03708
03907
04082
04236

03508
03729
03925
04099
04251

03531
03749
03944
04115
04265

03554
03770
03962
04131
04279

03577
03790
03980
04147
04292

03599
03810
03997
04162
04306

03621
03830
04015
04177
04319

15
16
17
18
19

04332
04452
04554
04641
04713

04345
04463
04564
04649
04719

04357
04474
04573
04656
04726

04370
04484
04582
04664
04732

04382
04495
04591
04671
04738

04394
04505
04599
04678
04744

04406
04515
04608
04686
04750

04418
04525
04616
04693
04756

04429
04535
04625
04699
04761

04441
04545
04633
04706
04767

20
21
22
23
24

04772
04821
04861
04893
04918

04778
04826
04864
04896
04920

04783
04830
04868
04898
04922

04788
04834
04871
04901
04925

04793
04838
04875
04904
04927

04798
04842
04878
04906
04929

04803
04846
04881
04909
04931

04808
04850
04884
04911
04932

04812
04854
04887
04913
04934

04817
04857
04890
04916
04936

25
26
27
28
29

04938
04953
04965
04974
04981

04940
04955
04966
04975
04982

04941
04956
04967
04976
04982

04943
04957
04968
04977
04983

04945
04959
04969
04977
04984

04946
04960
04970
04978
04984

04948
04961
04971
04979
04985

04949
04962
04972
04979
04985

04951
04963
04973
04980
04986

04952
04964
04974
04981
04986

30

04987

04987

04987

04988

04988

04989

04989

04989

04990

04990

This table can be used to calculate N(d), the cumulative normal distribution functions needed for the Black-Scholes model
of option pricing. If di > 0, add 05 to the relevant number above. If di < 0, subtract the relevant number above from 05.

End of Question Paper

10