Finance Numericals

 Convertible Security: These are securities that convert into common stock with specified time period Convertible securities are convertible bond and convertible preference share. Convertible bond has a facility to convert it to shares. So, the interest rate is low in comparison to non-convertible bond. What is Conversion Ratio? Conversion Ratio: It refers the number of shares a convertible security holder receives after converting its security to shares. Formula: Conversion ratio = P/CP Where, P = Par value of bond CP = Conversion price Conversion Price: It is a price of per shares given to convertible security holder in exchange of shares. Formula: Conversion Price = P/CR Where, P = Par value of bond CR = Conversion Ratio Conversion Value: It is the value of share price an investor receives after converting the bond or preference shares into common shares. Formula: Conversion Value = CR* P s Where, CR = Conversion Ratio P s =Price per Share ...

What is Inflation? Inflation is a rise in price of a goods and services in particular period of time. In inflation the purchasing power is decreases.  Example: Suppose on 25 may 2021 Mr. Gupta pays Rs. 20 for one pencil set and now in 2022 those pencil set cost Rs. 50. The rise in price shows the inflation and you can also notice that the value of money is decreases because those pencils which Mr. Gupta bought in Rs. 20 is now increases by Rs. 30. The price of product is definitely increases but the value of product is decreases. What is Capital gain?   Capital gain is rises due to sale of capital assets. It can be short term or long term. Formula:  Indexed cost of acquisition = Cost of acquisition * cost of inflation indexed of  the year the asset is being transferred / cost of inflation indexed of  the year the asset was acquired or 2000-01 (whichever is later) Indexed cost of improvement = Cost of improvement * cost of inflation indexe...

Real rate of return: A real rate of return is a rate of return which give returns value after adjusting all the related information or factors which helps to calculate return on investment. The other factors are tax, inflation rate etc. It provides correct value of return on investment. This rate helps to decide whether it is beneficial to invest in that project for investor or not. Formula: Real rate of return = [(1+nominal rate) / (1+inflation rate)] -1 Nominal rate of return: A nominal rate of return is a rate which doesn’t adjust any further information or you can say it does not include other factors which affects the return on investment. It does not help to make a correct investment decision.   The rate tells how much investor approximately earns annually on investing in a project. Formula: Nominal rate of return = Market value – Original investment value / Original investment value Example:...

  Breadth of market theory : It helps to understand the rise and fall in the prices of major indexes or stocks. It is a technical analysis tool which helps to know the market strength with the help of breadth indicators by using total number of stocks in market to know the stock prices rises or fall in a trading day. Breadth of market rises if the stock prices fall but the major indexes rise.   With the help of breadth of market indicators investors can easily predict the market growth or rise or fall in stocks. It indicates how much stocks advances in respect of decline stocks in market or how much stock volume advances in respect of decline in stock volume in a day.   There are two methods which help to measure the breadth of market: ·         A/D ratio (Advances/Decline ratio) ·         A/D Line (Advances/Declines Line) Both the methods are calculated on daily basis. Advances/Declin...