ACFINA3 Formula Card
1.2 Determinants of interest rates
General equation of interest rate on an asset: ij* = f(RFR, IP, DRPj, LRPj, SCPj, MPj)
Nominal rate = real rate + inflation rate Inflation premium (IP)= nominal rate – real rate
1.3 Interest rates and price volatility
Change in price using D and MD:
Macaulay’s Duration: where (1+rb) = (1+ (APR/m))
Modified Duration = D/(1+rb) Effective duration = (P(1) - P(2)) / (2 x P(0) x Y)
Portfolio Duration= Change in price using CX:
Convexity:
2.1 Money Market
(Bank) discount yield Single payment yield / Money Bond equivalent yield (BEY)
market yield /CD equivalent yield or expected annualized yield
Effective annual return (EAR) Holding period yield (HPY) or Effective annual yield
holding period return (HPR)
ACFINA3 Formula Card
2.2 Bond Market
G-spread= Corporate Bond yiled I-spread= Corporate Bond yiled OAS spread= Z-spread less
less treasury bond yield less interpolated treasury bond option value
yield
2.3 Mortgage Market
Mortgage period payment
Indifference (in no. of months) = Cost of discount/ Monthly savings
2.4 Stock Market
Price-weighted index Value-weighted index
2.5 Foreign Exchange Market
Net exposurei = (FX assetsi – FX liabilitiesi) + (FX boughti – FX soldi)
= net foreign assetsi + net FX boughti
= net positioni
Purchasing power parity
interest rate parity theorem
2.6 Derivative Securities Market
intrinsic value call option = max{P – X, 0}
intrinsic value put option = max{X – P, 0}
time value = max {premium – intrinsic value, 0}
Put-Call Parity:
C + PV(X) = P + S
ACFINA3 Formula Card
3.2 Financial statements and analysis
ROE= Net Income/Stockholder’s Equity Past Due Ratio= Past due loans/ Gross TLP
ROA= Net Income/ Total Asset Gross NPL ratio= Gross NPL/ Gross TLP
EM= Total Asset/ Stockholder’s Equity NPA to gross asset NPA/ (Total Assets + Allowance
ratio= on NPA)
PM= Net Income/ Total Operating Cash to Deposits= Cash and Due from Banks/
Income (TOI) Deposits
AU= Total Operating Income/ Total Liquid Assets to (Cash and Due from Banks + Net
Asset Deposits= Financial Assets)/ Deposits
Interest expense ratio= Interest Loans to Deposits= Gross Loans/ Deposits
expense/ TOI
Provision for loan loss ratio= Provision Earning Asset Interest income/ Average
for loan losses/ TOI Yield= earning assets
Non-interest expense ratio= Non- Funding Costs= Interest expense/ Average
interest expense/ TOI interest bearing liabilities
Tax ratio= Income taxes/ TOI Interest spread= Earning asset yield – funding
cost
Interest income ratio= Interest income/ Net interest Annualized net interest income/
Total Asset margin= Average earning asset
Non-interest income ratio= Non-interest Capital to Total Total Capital/ Total Asset
income/ Total Asset Asset=
Overhead Non-interest income/ non-
efficiency= interest expense
3.3 Regulation of Phil. banks
Tier1 ratio = Tier1 capital/ Risk-weighted assets
CET1 ratio= CET1 capital/ Risk-weighted assets
NSFR:
ACFINA3 Formula Card
4.1 Managing credit risk
gross debt service (GDS) Ratio = total debt service (TDS) Ratio =
(Annual mortgage payments + Property Annual total debt payments / Annual
taxes) / gross income gross income
Altman’s Z-score: Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
where X1 = working capital ÷ total assets; X2 = retained earnings ÷ total assets; X3 = earnings before
interest and taxes ÷ total assets; X4 = market value of equity ÷ book value of long-term debt; X5 = sales ÷
total assets
ROA approach:
4.2 Managing liquidity risk
Financing Requirement (or Borrowed Funds) =
Financing Gap + Liquid Assets
Liquidity index:
4.3 Managing interest rate and insolvency risk
Repricing Model: ΔNIIi = (RSAi – RSLi)ΔRi
Repricing Model spread effect: ΔNIIi = (RSAi x ΔRRSA) – (RSLi x ΔRRSL)
Duration Model: , where k = L/A