## Search results

**Sortino Ratio**

Sortino ratio is a financial ratio that is used to measure the performance of investment portfolio and is very similar to a Sharpe ratio. The main difference between Sortino ratio and Sharpe ratio is that Sharpe

http://www.investingforbeginners.eu/sortino_ratio

**Risk-Free Interest Rate**

A risk-free interest rate is rate of interests that would be paid by fixed income securities that contains no risk at all. For a very long time short-term US Treasury securities was used to d

http://www.investingforbeginners.eu/riskfree_interest_rate

**Real Risk-Free Interest Rate**

A real risk-free interest rate is very similar to (nominal)

**risk free**rate. The only difference is that real

**risk free**rate is under condition if no inflation expected. Real

**risk free**rate is deducted from nomina

http://www.investingforbeginners.eu/real_riskfree_interest_rate

**Junk Bonds**

Junk bonds are bonds that have a speculative-grade credit rating, which is BB or lower. Junk bonds are riskier but they have higher yields. The spread between junk bond yield and safe bond yield (c

http://www.investingforbeginners.eu/junk_bonds

**Net Present Value (NPV)**

Net present value (NPV) is a value calculated by discounting all future net cash flows (net cash flow is calculated taking all the forecasted future income and subtracting from them forecasted expenses in every p

http://www.investingforbeginners.eu/net_present_value_npv

**Investment Performance Measurement**

Many investors are happy about investment managers until the stock market is growing, but when the decline starts investment managers gets only the worst words about their job. However, this is wrong attitud

http://www.investingforbeginners.eu/investment_performance_measurement

**Treynor Ratio**

Treynor ratio is another popular ratio that is used to measure the performance of investment portfolio. This ratio compares the excess return (above

**risk free**return) of a portfolio to beta of that portfolio. Whi

http://www.investingforbeginners.eu/treynor_ratio

**Jensens Alpha**

Jensen’s alpha is used to measure the performance of an investment portfolio. The higher ratio means better performance of portfolio manager. Basically, this Jensen’s ratio shows the above market port

http://www.investingforbeginners.eu/jensens_alpha

**Sharpe Ratio**

Sharpe ratio measures the above

**risk free**performance of investment portfolio in relation to its risk. This ratio was developed by William F. Sharpe which introduced the ratio in 1966. Now Sharpe ratio is the mos

http://www.investingforbeginners.eu/sharpe_ratio

**P/E Ratio**

P/E ratio is the most popular valuation multiple that is used for stock analysis. This ratio shows the price of the stock compared to its earnings. The multiple is so popular because of its simplicity and im

http://www.investingforbeginners.eu/p_e_ratio

**Cost of Equity**

Cost of equity is the rate of return that is required by equity owners from their investment. Of course, requirements of the shareholders have to be real and meet market conditions as well. Basically cost of equi

http://www.investingforbeginners.eu/cost_of_equity

**DCF Valuation**

Discounted Cash Flow Analysis DCF valuation might be applied to any asset that generates positive free cash flow or is expected to generate that cash flow in the future. DCF valuation might be directly applied t

http://www.investingforbeginners.eu/dcf_valuation

**Discounted Cash Flow**

Discounted cash flow (DCF) is forecasted net cash flow of the company or other asset that is recalculated (discounted) to its current value. Discounted cash flow is important for investment assessing and mostly i

http://www.investingforbeginners.eu/discounted_cash_flow

**CAPM**

CAPM (Capital Asset Pricing Model) is method widely used for equity cost calculation. Equity cost should show the return that investor should expect/seek from an investment that contains specific level of risk.&n

http://www.investingforbeginners.eu/capm

**Risk Averse**

Risk averse is a characteristic of an investor who is avoiding risk. The more investor is avoiding the risk the more is he risk averse. Almost all the investors (as people are too) are more or less risk averse an

http://www.investingforbeginners.eu/risk_averse

**Cost of Debt Formula**

Cost of debt formula Theoretical cost of debt formula: Before tax cost of debt =

**risk free**rate + Credit risk premium After tax cost of debt = (

**risk free**rate + Credit risk premiu

http://www.investingforbeginners.eu/cost_of_debt_formula

**After Tax Cost of Debt**

There are two types of the debt cost: ‘before tax cost of debt’ and after tax cost of debt. The only difference between those is that the first one is equal to the interest rate paid by company while

http://www.investingforbeginners.eu/after_tax_cost_of_debt

**Cost of Debt Calculation**

The cost of debt is easy to calculate if they are required data. Actually, there are few methods to get the cost of debt, but some of those are more accurate some less. If you want that your result would be more

http://www.investingforbeginners.eu/cost_of_debt_calculation

**Market Risk Premium**

(Equity Risk Premium) Every investment carries some level of risk and some level of potential return. Those two measures are closely related in investment finance and are used in CAPM which calculates cost of eq

http://www.investingforbeginners.eu/market_risk_premium