1.

FV = PV (1+i)
n
..Compounded Annually
2. FV = PV + PVin ..Simple interest
n
3. P
0
= C
t
/(1 + r
f
)
t
+ P
n
/

(1 + r
f
)
n

t=1

where P
0
= present value
C
t
= interest payment (Coupon payment) at time t
Pn= face value (principal repayment) at maturity
n= number of periods to maturity
rf= risk-free interest rate (yield)

4. Annuity Due:
PV = C + (C/i) * [1 1/(1+i)
n-1
]

Where: PV = present value
C= cash flow per period
i = interest rate per period
n = number of cash flows

5. Normal/Ordinary Annuity:
PV = C/i * [1 1/(1+i)
n
]

6. Deferred Annuity:
P = 1/(1+i)
k-1
* C/i * [1 1/(1+i)
n
]

where: k= number of time periods deferred until the first cash flow
n= number of cash flows
7. The average rate (geometric rate) :
Total Return = (1 + percent return) * (1 + percent return) *.(number of periods)
Geometric average = ((total return)
(1/number of years)
) - 1

8. FVIF(in) = future value interest factor for t periods at interest rate i.
= (1+i)
n

9. PVIF(in) = present value interest factor for t periods at interest rate i. = (1+i)
-n

10. FVIFA(in) = future value interest factor for annuity of n periods (payments) at interest rate i.
= [(1+i)
n
-1]/i .. [text uses S (n,i) ]
11. PVIFA(in) = present value interest factor for annuity of n periods at interest rate i.
= [1- (1+i)
-n
]/i .. [text uses A (n,i) ]
12. Calculate effective annual rate
i = (1 + j/m )
m
- 1
Where, i = effective annual rate
j = nominal interest rate
m = frequency of compounding
13. Effective monthly rate = Nominal interest rate/ 12
14. Nominal monthly rate = Nominal interest rate/ 12
15. Perpetuity
P
0
= D/k
e

Where
Po = price time zero (now)
D = constant dividend
ke = cost of equity

16. Constant Growth Model: P
0
= D
1
/ (k - g) => P
0
= D
0
(1 + g) / (k g)
D
1
= D
0
(1 + g)
D
2
= D
1
(1 + g) or D
2
= D
0
(1 + g)
2
..and so on
If there are two growth rate then
P
x
= D
x
/(k
e
-g
2
)
17. Standard Model


18. Interest = Opening balance * Interest rate
19. Fisher equation: (1+N) = (1+R)(1+EI) (1+nominal) = (1+real) x (1+ expected inflation)
20. Expected Return of the Portfolio: E(R
p
) = a x E(R
a
) + b x E(R
b
)
21. Variance of the Portfolio:


22. CAPM : Capital Asset Pricing Model



23. | | )
~
( )
~
(
f m i f i
R R E R R E + = |
Required Return = Risk Free Rate + Number of Units of Risk X Risk Premium per Unit of
Risk
R
f
is the risk free rate (about 6% - govt bond rate)
E(R
m
) is the return on the market (about 12%)
Risk/return relationship for all assets, investments and portfolios (efficient or inefficient)
R
i
- R
f
is the risk premium on asset i
R
m
- R
f
premium on the market portfolio, (about 6%)

=
+
+
+
=
n
t
n
e
n
t
e
t
o
k
P
k
D
P
1
) 1 ( ) 1 (
2 2 2 2 2
2 2 2 2 2
2
2
p a b ab
p a b ab a b
a b ab
a b ab
o o o o
o o o o o
= + +
= + +
2
) (
) (
m
im
m
m i
R Var
R R Cov
Beta
o
o
| = = =
Riskfree rate has beta of zero
Market return has beta of one
24. Using the CAPM, Risk Adjust discount rate (RADR)
R
i
(RADR) = R
f
+ Beta(R
m
- R
f
)