Formula Sheet Exam #1

Note: for the equations, r = rnom/m where m is the number of compounding periods per year and n is
total number of compounding periods.

FVt
FVt = PVn (1 r ) t n PVn =
1 r t n

CFt 1 CFt 1
PVperpetuity t = PVgrowing perpetuity t =
r r g

CFt 1 1 CFt 1
PVordinary annuity t = 1 FVordinary annuity t = 1 r n 1
r (1 r ) n r

n
CFt 1 1 g
PV growing annuity t = 1


r g 1 r

m
rnom
1
r
EAR = 1 1 1 EAR m 1
m m

H
rnom
EPR = 1 1
m

Effective annual rate (EAR) and Effective Periodic Rate (EPR) where m represents the number of
compounding periods per year & H represents the number of compounding periods between payments.

rI
R= where R represents the real rate and I represents inflation.
1 I
BONDS

CouponRate
Bond Payment = * Par
m

PMT 1 Par Value

Bond Price = 1 n

y (1 y ) 1 yn
Where y= yield to maturity

P1 P0 PMT 1
Holding Period Return = which is meaningful for 1-year period.
P0

Internal rate of return on Bond (r) =>

PMT 1 Sale Price
Purch. Price = 1 n

r (1 r ) 1 r n

Annual Payment
Current Yield =
Price

Decision Rules

CF1 CF2 CF3 CFn

NPV = (Initial Investment) + + + ++
1 r 1 r 1 r
1 2 3
1 r n
IRR, NPV = 0, so
CF1 CF2 CF3 CFn
0 = (Initial Investment) + + + ++
1 IRR 1 IRR 1 IRR
1 2 3
1 IRR n
NPV
Profitability Index (PI) =
Amount of Constraint Used