Chapter 3 · 2 of 100 marks · workbook pages 55-77
Terminology in Equity and Debt Markets
The vocabulary the rest of the syllabus assumes: value terms, market cap and EV, EPS and the price multiples, bond mechanics, yields, duration, bond types, and commodity terms.
Focus
- Equity valuation terms
- Debt terminology
- Yield measures
- Bond types
- Duration
Must know
- Equity terms include face value, book value, market value, intrinsic value, market cap, enterprise value, EPS, DPS, P/E, P/S, and P/B.
- Debt terms include coupon, maturity, market price, redemption, holding period return, current yield, YTM, realised yield, and duration.
- Duration rises with higher maturity and lower coupon, increasing interest-rate sensitivity.
Traps
- Current yield ignores capital gain or loss to maturity.
- Enterprise value is not the same as market capitalization.
- Bond price and market interest rates move inversely.
Formulas in this chapter
Full sheet- Market Capitalisation: Market cap = Share price x Number of outstanding equity shares
- Enterprise Value (EV): EV = Market cap + Total debt - Cash & cash equivalents
- Earnings Per Share (EPS): EPS = PAT / Number of equity shares
- P/E Ratio: P/E = Market price per share / EPS
- Current Yield (bond): Current yield = Annual coupon / Current market price