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83 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Accounting Equation = |
Liabilities + Owners Equity
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These are current assets for a NON insurance company |
Cash Accounts Receivable Marketable Securities Inventory |
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Working Capital |
Current Assets- Current Liabilities |
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These are considered current liabilities |
State Taxes Due Short Term Debt
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This is the calculator formula for determing the payments needed to get a future value |
Shift Clear All FV IYR N PMTS |
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Formula Cost of Debt |
Risk Free Rate of Return+ Risk Premium * (1-Tax Rate) |
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Formula Owners Equity |
Asset - Liabliities |
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Examples of Assets |
Checking Account Office Bldg & Equipment Accounts Receivable |
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Examples of Liablilities |
Long Term Debt |
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Net Profit Margin |
Net Income/Sales |
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Return on Assets |
Net Income / Total Assets |
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XYZ Ins purchased a $10,000 par value bond for $9900.00. The bond will mature in 5 years. Next year , the bonds amortized cost will be |
$10,000-$9900= $100/5 = $20.00 $9920.00 |
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Determining the annual interest expense if bonds are being used to raise capital. $100,000 in bonds needs to be raised and the interest rate is 10%. |
10% * $100,000 =$10,000 |
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What is the pecentage under the RBC formula to maintain capacity to avoid regulatory action |
200%
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Equity Multiplier Ratio emphasizes |
The efficient use of debt to finance assets |
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Ending Retained Earnings |
Beginning Retained Earnings+ Net Income - Dividends |
What I saved, What I made less what i paid.
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What is considered when determining debt to equity. |
Long Term Debt /Sharholders Equity |
House Mortgage/House Value
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What is considered when determining debt to assets |
Long Term Liabilities +Current Liabilities/Total Assets |
House Note and Credit Card Note/ House , Contents |
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Equity Multiplier |
Total Assets/Shareholders Equity |
All My Stuff/ What i have that is my portion of my stuff and not the banks |
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Return on Equity |
Net Income/Total Equity |
My Paycheck/ What I have that is my portion of my stuff and not the banks |
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A preferred stock pays an annual fixed dividend rate of $6.00 per share. Assuming an inflation rate of 4%, and a discount rate of 6%, what is the value per share of the preferred stock. |
$6.00/.06 =$100.00 |
Dividend Rate/Discount Rate dont worry about the inflation |
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FORMULA ROE - with EBIT |
EBIT - Interest Expense/Equity
Remember EBIT - Interest Expense aka NI
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ROE EBIT EQUALS OUT |
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Formula Cost of Debt for Issuing a bond |
Cost of Debt = YTM *(1-Tax Rate)
This is a percentage not an amount |
This is a percentage |
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If an insurer has an IRIS Ratio 3 Change in Net Writings to value greater than zero indicates what |
The net written premiums in the current year exceeds thos in the prior year. |
This is common sense and you should think about it and get it right |
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Growth Rate Formula |
Year 2 NI- Year 1 NI/Year 1 |
easy |
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Formula Combined Ratio |
Expense Ratio + Sum of the Loss Ratio |
Should know |
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What is CFJ used for on the calculator |
Determines Net Present Value of payments of different amounts |
Cant Find Jack because he pays different |
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Formula for Calculator to Determine NPV with different payments |
Shift Clear All Amt1 CFJ Amt2 CFJ Amt3 CFJ IYR SHIFT NPV |
Remember shift to different gears. |
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EBIT aka Net Income would be attained using the folloiwng formula if interest expense was a factor |
EBIT- Interest Expense |
Interest Expense is the amount to be raised x annual interest rate |
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Formula for interest expense |
Amount to be raised * annual interest rate |
This should be deducted from EBIT |
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EBIT Using the debt option of issuing bonds would require what to be deducted from the Assets to get equity |
The amount to be raised with the bond |
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EBIT - Formula for calculating return on equity using annual interest rate of bond THis is to get the ROE |
EBIT less annual interest rate *amount to be raised divided by Total Assets -less price of the bonds |
Concentrate |
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When compounding occurs annually, what interest rates will be identical |
Nominal and Effective Interest Rates |
Look these 2 up |
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Formula Inventory Turnover Ratio |
COGS/Inventory |
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What does the premium to surplus ratio relate |
Net written premiums to policyholder's surplus |
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Insurance Leverage is measured using the raito of |
Reserves to Policyholders Surplus |
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Formula Insurance Leverage |
Written Premiums/PH Surplus x Reserves/ Written Premiums |
Loss & Reserves/PH Surplus |
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A company with a debt to equity ratio of .5 has the following cost of capital Cost of Equity - 10% Cost of Debt - 8% What is the WACC
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Since the debt to equity is .5, the company has twice the amount of equity as debt. WACC is (Cost of Equity x Percentage Equity)+ (Cost of Debt * Percentage Debt) (.1x.67) +(.08 x .33) .067 +.027 = 9.4%
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Page 59 of BD Module 10 Need to review |
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XYZ Year End Fin Statement Acct Rec - 5 Inve 10 Credit Sales - 30 COGS- 20 NI 8 What is the acct rec turnover |
Credit Sales/Acct Recev 30/5 = 6 |
Remember this CREDIT SALES only and nothing to do with inventory |
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Which company has the best ability to issue new policies |
The company with the lowest premium to surplus ratio |
LOWEST |
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Pete is selling a bldg. The bldg has provided pete with $40,000 for the past 6 years. Assuming a buyer potential cap rate is 7% . the current value of the building is |
$40,000/.07 = $571,429 NI/Pot Cap Rate |
NIP CR |
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If the market ROR is 6% and a company has a ROR of 4.5% What would the beta be |
Less than One |
Inversely- |
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If the market ROR Is negative 6% and a company ROR is negative 7%, What would be the Beta |
Greater than one because they both moved in the same direction, so the beta would be postive and greater than one |
Research this crap |
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ABC Co financial statements reflect the Cash 100 Acct Rec 75 Prop/Equip 225 Mark Securities 50 Inventory 150 Curr Liab - 300 Long Term Liab 500 Acid Test Ratio = |
Cash +Acc Rec+ Mark Sec/Curr Liab 100+75+50/300 =.75 |
Inventory is not a part of it |
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Which of the following items on a financial statement is not included the Acid Test Ratio Inventory Cash Acct Recev Marketable Secur |
Inventory |
Remember this |
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These are the steps on the calculator for FV of a present sum |
Shift Clear All Original Amt- PV Interest Rate I/YR N - number of years FV- |
Make sure its not a negative number
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Formula for Taxable Equivalent Yied of a Tax Free Bond |
Return on Bond/1-Tax Rate |
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John fed Marginal Tax Rate=35% Interested in a bond that yields 4%. What is the taxable equivalent of this bond |
.04 /1-35%=6.15% |
Remember this |
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What type of bond should an insurance company purchase if being used to make an expected large claim payout in the future |
Zero Coupon Bond |
Should mature in the year loss is expected to be paid |
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ABC stock is $21 per share Dividend Growth Rate is 5% Inflation Rate is Currently 2%. |
Dividend *Growth Rate*1/Price Per Share and add that to the Dividend Growt Rate $2.00 * 1.05= $2.10 2.10/21=.10 .05+.10= .15
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Read Over and Over |
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WACC Formula |
Cost of Equity * Percentage of Equity +Cost of Debt * Percentage of Debt |
CEPECDPD- Charles Eats Crushed Purple Eggs Cause Donna Paid Dollars
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Formula Cost of Debt |
YTM * (1-Tax rate) |
My debt yearns to meet taxes |
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A company has debt to equity ratio of .50 and the following info Required ROE =10% YTM =8% Margi Tax Rate = 30% What is the WACC |
COD .08 * 1-.30% 5.6% is COD Equity Percentage - .67 Debt Percentage .33 .10*.67+.056*.33 .067+.018= .085 or 8.5% |
Thank you Alice
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Effective Annual Interest Rate
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Takes into the account the interest rate when it is compounded monthly not just for the year |
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What is the effective annual interest rate for a 4% nominal rate that is compounded semi annually |
Shift Clear All Shift Disp 4 (decimal places) 4 Shift Nom (4% as nominal rate) 2 Shift PYR (semi annual payments) Shiff Eff |
This is one that is different |
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When would you press the DISP button on the calculator |
When wanting to change number of decimal places (often used for Effective Annual Interest Rate)
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How do you change from compounding 1 once a year to 2 times a year |
2 Shift PYR |
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When getting the Effecitive Annual Interest Rate , do you press Shift EFF or EFF |
Shift Eff |
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Formula on calculator for determing FV with payments aka FV of an ordinary annuity |
Shift C ALL Shift Beg End (make sure beg not there) Payment amount as a negative IYR N FV |
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C plans on making $1000 deposits at the end of the year for 4 years. 5% interest rate compounded annually . How much will be available at the end |
$4310.13 |
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Formula for Surplus Relief |
(Ceded Written Premiums -Ceded Earned Premiums) x Ceding Commision |
CWP CEP CC
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ABC CO purchase reinsurance with a ceding commision of 25%. Assume the following: Ceded Written Premiums- $11,000,000 Ceded Earned Premiums - $10,000,000 What is the amount of surplus relief |
$250,000 |
CWP-CEP * CC |
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Equity cost of Capital Formula |
Dividend Projected (Prior dividend x 1+06)/Current Value of Stock + Dividend Growth Rate |
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Dividend Projected is figured in this manner |
1 + Growth Rate x Prior Year Dividend |
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Using the dividend growth model and the data below, what is the cost of equity capital Cap to be raised- 1,500,000 Current Divident per share-$3.00 Present cost of stock per share $60.00 Dividend Growth - 6% |
11.3% |
DP/CVOS +DGR |
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All of the following represents risk that taken into account under the RBC System for a property insurer |
Underwriting Credit Asset |
Liquidity Risk Drinking bad |
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If demand and revenues increase after a drop in price, the demand is considered |
Elastic |
Not inelastic |
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Formula Premium to Surplus Ratio |
NWP/PHS |
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Formula for PV of Single Sum |
P/(1+i)" |
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How do you change the calculator to Semi Annually |
2 shift PYR |
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Would you use the negative or positive sign when inputting the present value to determine the length of time for something to accrue |
Negative |
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A mortgate is an example |
of an Ordinary Annuity
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Calculator Formula for PV with a bond that pays a coupon annually |
Shift Clear All FV PMT IYR N PV |
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ABC has a bond with a par value of $1000. The bond has a 5% coupon (payable annually) and will mature in 9 years, if it is yield to maturity is 3%, what is the current price of the bond |
$1155.72 |
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CostofEquity Capital Formula |
Risk Free Rate + (Beta x expected return on the market-risk free rate) |
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Jon wants to use the CAPM to determine the cost of equity capital for an insurance company. The company has a beta of 1.3 and the expected return of the market is 8%. Assuming a risk free rate of return of 3%, what is the Equity cost of capital using the CAPM method. |
9.5% |
Read |
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Market Value of Surplus Formula |
Fair Value of Assets -(Present Value of Liabilities +Market Value Margin) aka fair value of of liabitlites |
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Fair Value of Liabilities equals |
Present Value of Liabilities + Market Value Margin |
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EBIT |
(total shares outstanding if stock is sold x Cost of Debt/Additional Shares to be sol |
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How do you change the calculator from annually to monthly interest |
12 shift PYR |
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What to remember when calculating annuities |
Always use negative and make sure you use the correct beg end mode |
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Dividend paid on this type of stock represents a perpetuity |
Preferred Stock |
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On 1/1 of the current year an investor purchased 100 shares of a stock for $50.00 per share. During the year , the investor received cash dividends of .10 per share. On 12/31 , the stock was valued at $60.00 per share. The rate of return is |
20.20% |
60- 50=10.00 +.10 =10.10/50 |
