SINGLE TRADE DISCOUNT

Amount of Discount = Rate of Discount x List Price

Rate of Discount = Amount of Discount / List Price
List Price = Amount of Discount / Rate of Discount
Net Price = List Price Amount of discount
Net Price Factor (NPF) = 100% - %Discount
%d
Net Price = Net Price Factor x List Price
xL
List Price = Net Price / Net Price Factor
DISCOUNT SERIES
NPF for a discount series =
(1-dn)
Net Price = List Price Amount of Discount
(1-d2)(1-dn) x L
List Price = Net Price / Net Price Factor
d1)(1-d2)(1-dn)
Single Equivalent Rate of Discount = 1 NPF
(1-d1)(1-d2)(1-dn)
2/10,n/30
2= discount %
10= discount period
N = net amount
R.O.G. = Receipt of Goods
E.O.M. = End of Month

D = %d x L
%d = D / L
L = D / %d
N=L-D
NPF = 1 N = (1-%d)

(1-d1)(1-d2)
N = (1-d1)
L = N / (1SERD = 1 30 = credit period

MARKUP
Selling Price = Cost Price + Markup
S=C+M
Markup = Expenses(overhead) + Profit
M=E+P
Selling Price = Cost Price + Expenses + Profit
S=C+E
+P
Rate of Markup Based on Selling Price = Markup / Selling Price
%R = M / S
Rate of Markup Based on Cost Price = Markup / Cost Price
%R = M / C
MARKDOWN
Sale Price = Selling Price x (1 Markdown %)
Selling Price = Sale Price / (1 Markdown %)
Markdown % = 1 (Sale Price / Selling Price)
MARKUP FROM COST PRICE
MARKUP FROM
SELLING PRICE
Selling Price = Cost x (1 + %Markup)
Selling Price = Cost / (1
- %Markup)
Cost = Selling Price / (1 + %Markup)
Cost = Selling Price x
(1 - %Markup)
%Markup = (Selling Price / Cost) 1
%Markup = 1 (Cost / Selling Price)
BREAK-EVEN ANALYSIS
Total Revenue = Volume (in units) x Price
Total Variable Cost = Volume (in units) x Variable Cost per Unit
Total Cost = Fixed Cost + Total Variable Cost
Total Revenue = Fixed Cost + Total Variable Cost + Profit
Net Income = Total Revenue Total Cost (at break even point Total Revenue = Total
Cost and Net Income = 0
FC = Fixed Cost, VC = Variable Cost, P = Unit Price, PFT = Profit, Q =
Quantity/Number of Units
When sales and variable costs are in total dollars, assume the price per
units is $1. Then Unit Variable Cost = Total Variable Cost / Total Sales
CONTRIBUTION MARGIN
Contribution Margin per Unit = Selling Price per Unit Variable Cost per Unit
Contribution Rate = Unit Contribution Margin / Unit Selling Price
Break-Even Volume = Fixed Costs / Unit Contribution margin
SIMPLE INTEREST
Interest = Principal x Rate x Time (in years)
Principal = Interest / (Rate x Time)
Rate = Interest / (Principal x Time)
Time = Interest / (Principal x Rate)
Future Value or Maturity Value
Future Value (S) = Principal + Interest
rt) or S = P + Prt
Present Value (Principal) = Future Value / 1+ (Rate x Time)
rt

-The date on which a partial payment is made is counted as the first day at the new
outstanding principal balance.
COMPOUND INTEREST
Compounding frequency
Length of period
Annual
12 months
Semi-annual
6 months
Quarterly
3 months
monthly
1 month
Number of compounding periods
N
Annual rate of interest(percent)
I/Y
Present value or principal
PV
Future value or maturity value
FV
Compound Discount
FV PV
FV = PV(1+i)n
PV = FV/(1+i)n
PV = FV(1+i)-n

I=Prt
P=I/rt
R=I/Pt
t=I/Pr
S
S = P (1 +
P=S/1+

Select a FOCAL DATE or COMPARISON DATE

If the due date falls BEFORE the focal date, find the future value by using S =
P(1+rt)
If the due date falls AFTER the focal date, find the present value by using P = S/
(1+rt)
Legal due date = 3 days of grace
INTEREST BEARING NOTE
Step 1: find maturity value using interest rate
Step 2: calculate present value using rate money is worth
TREASURY BILLS
Do not carry interest rate, no days of grace
Purchased at discounted price, determined by finding Present Value (P) of the T-bill
DEMAND LOANS
Step by Step procedure of Declining Balance Approach
(a)Compute the interest due to the date of partial payment
(b)Compare the interest due with the partial payment and do part (c) if the partial
payment is greater than the interest or do part (d) if the partial payment is less
than the interest due
(c)- (i) deduct the interest due from the partial payment
- (ii) deduct the reminder in part (i) from the principal balance to obtain the new
unpaid balance
(d)- (i) deduct the partial payment from the interest to determine the unpaid
interest
- (ii) keep a record of this balance and apply any future partial payments to this
unpaid interest first
POINTERS AND PITFALLS
-The date on which there is a change in the interest rate is counted as the first day
at the new interest rate.

LONG TERM PROMISSORY NOTES

Term of note longer than one year. Can be bought and sold at any time
before maturity. Subject to compound interest. No requirement to add
the 3 days of grace in determining legal due date. The discounted
value (or proceeds) is the PRESENT VALUE of the MATURITYVALUE at
the date of discount.
EQUIVALENT VALUES
Equivalent values are the dated values of an original sum of money.
FINDING EQUIVALENT VALUES
Select a focal date. The focal date is a specific date chosen to compare
the time values of one or more dated sums of money.
If the due date of the payment falls before the focal date, use the FV
formula.
If the due date of the payment falls after the focal date, use the PV
formula.
EQUATED DATE
A payment of $1000 is due today (t=0) and another payment of $3000 is due in 5
years. Find the date at which a payment of $3800 will settle the debt.
1000 + pv3000 = pv3800
Fv = 3000, compute pv +1000 = pv of 3800, then fv -3800 (because one has to be
negative), cpt N
EFFECTIVE RATE OF INTEREST
The effective rate is the equivalent rate of interest compounded annually. Effective
rates can be used to compare nominal rates of interest. An effective rate can be
found by computing the future value (FV) of $1 after one year and then subtracting
the $1 of principal.
f = (1+i)m 1 where m is the number of compounding periods per year
Effective Rates Using the BAII Plus
2nd(ICONV) 2-key
NOM=
C/Y=
EFF=
EQUIVALENT RATES
Interest rates that increase a given principal to the same future value over the
same time period are equivalent. Find equivalent rates by equating the
accumulated or FV of $1 for rates under consideration based on a selected time
period, usually a year.
ANNUITY
Using TI BAII+
Number of compounding periods = N
Annual rate of interest(percent) = I/Y
Periodic annuity payment = PMT
Present value or principal = PV
Future value or maturity value = FV
The present value PV should be set to zero when determining the future value FV
and vice versa.
PRESENT VALUE APPLICATION
Cash value = down payment + present value of periodic payments (positive)
BAII PLUS
You must enter either PV or PMT as a negative value when both are given
Finding PV or FV of an Ordinary General Annuity
Set P/Y as number of payments per year
Set C/Y as number of compounding periods per year
AMORTIZATION
2nd => PV(AMORT)
P1 = payment start (1nth interval)
P2 = payment end (2nth interval)
BAL = outstanding balance (balance after P2)
PRN = portion of the principal repaid (from P1 to P2 interval)
INT = portion of payment that was interest (from P1 to P2 interval)
FINDING FINAL PAYMENTS
Often all payments are equal except for the final payment
1)
Find n and round it up to one unit
2)
Compare the balance after the nth payment
3)
Regular payment balance overpayment= final payment amount
BONDS
Face value (or par value or denomination) -amount owed to holder of bond
Bond rate (or coupon rate or nominal rate) -rate of interest paid, usually semiannually, based on face value of bond
Redemption date (or maturity date or due date) -date on which the principal of the
bond is to be repaid
Redemption price - money paid by the issuer to the bondholder at date of
surrender of bonds
Purchase price = present value of the redemption price + present value
of the interest payments
Bond rate determines the size of the periodic interest payments
Yield rate used to determine the present value of the two promised cash flows
involving the periodic interest payments and redemption value of the bond
BOND PREMIUMS AND DISCOUNTS
If the purchase price > redemption price, the bond is bought at a
premium.
Premium = Purchase Price Redemption Price
If the purchase price < redemption price, the bond is bought at a
discount.

Discount = Redemption Price-Purchase Price

NET PRESENT VALUE
NPV = present value of inflows present value of outflows
For a required rate of return:
Accept if NPV > 0, or NPV = 0
Reject if NPV < 0
BAII PLUS
CF = cash flow
2nd => CE/C (clear work)
CFO = initial investment (- if outflow/investment, + if inflow/payments)
C01 = end of first time period
F01 = frequency of payment
NPV = net present value (compute to find)
I = interest
RATE OF RETURN ON INVESTMENT (R.O.I.)
Let I be the rate of return used in finding NPV
If NPV > 0 (positive), then R.O.I. > I
If NPV < 0 (negative), then R.O.I. < I
If NPV = 0, then R.O.I. = I
BA II PLUS
IRR = internal rate of return (use compute to find)

Example: An investor purchased $250 000 in 364-day T-bills 315 days

before maturity to yield 3.38%. He sold the T-bills 120 days later to
yield 3.72%.
1)
How much did the investor pay for the T-bills?
P = 250000/1+3.38%(315/365) = 242914.23
2)
For how much did the investor sell the T-bills? 315-120= 195
days
P = 250000/1+3.72%(195/365) = 245128.33
3)
What rate of return did the investor realize on the
investment? (follow B.E.D.M.A.S.)
R = I/Pt = 245128.33 242914.23/242914.23(120/365) = 0.027724 =
2.77%
Example: a financial obligation requires the payments of 2000 in 6
months, 3000 in 15 months, and 5000 in 24 months, when can the
obligation be discharged by the single payment equal to the sum of the
required payments if money is worth 9% per annum compounded
monthly
Fv = 2000, c/y = 12, i/y = 9, n = 6, compute pv = -1912.32
Fv = 3000, c/y = 12, i/y = 9, n = 15, compute pv = -2681.92
Fv= 5000, c/y = 12, i/y = 9, n = 24, compute pv = -4179.16
Pv1+2+3 = -8773.39
Pv = -8773.39, fvsum(1+2+3) = 10000, compute n = 17.513581
Example: a loan of 2000 taken out today is to be repaid by a payment
os 1200 in 6 months, and a final payment of 1000. If interest is 12%
compounded monthly, when should the final payment be made
Fv = 1200, c/y = 12, i/y = 12, n = 6, compute pv = -1130.45
2000 = pv1200(1130.45) + pv1000, so then 2000 - pv1200(1130.45) =
869.55
Then fv = 1000, pv = -869.55, c/y = 12, i/y = 12, compute n = 14.05
(months)
Example: you are given a choice of a term deposit paying 7.2%
compounded monthly, or an investment certificate paying 7.25%
compounded semi-annually, which rate offers the highest rate of return
(nominal rate)
Nom = 7.2, c/y = 12, Compute EFF = 7.44 / Nom = 7.25, c/y = 2,
Compute EFF = 7.38
Example: savings plan requires deposits of 300 at end of each quarter
for 8 years. The amounts in the account at the end of 8 years becomes
a term deposit withdrawable after 5 additional years, interest
throughout total time period is 5% compounded quarterly
1.
How much will be in account after last deposit?
Pmt = 300, c/y = 4, i/y = 5, n = 32, compute fv = -11715.13
2.
What is balance when account is withdrawable?
Pv = -11715.13, c/y = 4, i/y = 5, n = 20, compute fv = 15019.23
3.
How much of the total was contributed by payments?
8 years x 4 quarters x 300 deposit = 9600.00
4.
How much interest was accumulated?
15019.23 9600 = 5419.23
Example: 1000/year for 10 years, interest at 5.75% compounded
annually. After 10-year term, deposit left additional 6 years at 5.5%
interest compounded semi-annually.
Total accumulated, pmt = 1000, (c/p)/y = 1, i/y = 5.75, n = 10, cpt fv =
-13027.06. further 6 years, pv=-13027.06, (c/p)/y = 2, i/y = 5.5, n =
(2x6) = 12, cpt fv = 18039.67
Total interest, 10 years x 1000 payment = 10,000 total, 18,039.6710,000 = 8039.67
Example: account payments of 1500 per year for 12 years, at 4.5%
compounded annually for first 8 years, and 5.5% compounded annually
for last 4 years. Account holds for 5 further years at 5.5 compounded
annually. What is final amount
Pmt = 1500, c/y = 1, i/y = 4.5, n = 8, compute fv = -14070.02
Pv = 14070.02, Pmt = 1500, c/y = 1, i/y = 5.5, n = 4, compute fv =
-23943.69
Pv = 23943.69, c/y = 1, i/y = 5.5, n = 5, compute fv = -31293.44
Example: on april 20, 2009. Bruce borrowed 4000 at 5% o a note
requiring payments of principal and interest on demand. Bruce paid
$600 on may 10th and $1200 on july 15th, what payment is required on
sept 30th to pay the note in full?
i)
Apr 20th to may 10th = 20 days. 4000 x 0.05 x (20/365)
= 10.96
600 10.96 = 589.04, 4000 589.04 = 3410.96 (new balance for
calculating interest)
ii)
May 10th to july 15th = 66 days, 3410.96 x 0.05 x
(66/365) = 30.84
1200 30.84 = 1169.16, 3410.96 1169.16 = 2241.80 remaining
balance
iii)
July 15th to sept 30th = 77 days, 2241.80 x 0.05 x
(77/365) = 23.65
So, 2241.80 + 23.65 = 2265.45 final payment

Example: retire in 7 years, wants $500/month for 10 years at end of

first month after retirement, deposit part of $50,000 into fund earning
10.5% compounded monthly
a)
How much in the fund at retirement?
p/y = 12, i/y = 10.5, n (10years x 12 monthly payments) = 120, pmt =
500, CPT pv = -37054.88
b)
How much of the proceeds were deposited?
p/y = 12, i/y = 10.5, n (7 years before retirement x 12 months) = 84, fv
(amount needed in fund fore retirement goal) = -37054.88, CPT pv =
17842.91
c)
How much expected from account?
$500 payments x 12 months x 10 years = $60,000
d)
How much is interest earned on monthly funds received from
deposited amount?
$60,000 total monthly payments $17,842.91 initial deposit =
$42,175.09 total earned from interest
Example: house valued at 96,000 is purchased for a down payment of
25%, and payments of 4000 at end of every three months, if interest is
9% monthly, how long will payments need to be made?
Pmt = 4000, i/y = 9, c/y = 12, p/y = 4, fv = 0, pv (96,000 value x 25%
= 24,000 down payment. So, 96,000-24000) = $72,000 CPT n =
23.390604 payments
23.390604 payments / 4 (quarterly payments) = 5.8475 years,
rounded to 6 years (23 full payments + 0.39 payments)
Example: $40,000 loan over 25 years, renewable after 5 years. Interest
at 9.5% compounded semi annually by equal monthly payments.
a)
What is the interest included in the 13th payment?
Pv = -40,000, n (25 years x 2 yearly payments) = 300, i/y = 9.5, c/y =
2, p/y = 12,
CPT pmt = -344.41
P1 = 13, P2 = 13, INT = -307.28
b)
How much of the principal is repaid in the 13th payment?
PRN = -37.13
c)
What is the total interest cost during the 1st year?
P1 = 1, P2 = 12, INT = -3709.11
d)
During the 5th year?
Year 1 = 1 12, year 2 = 13 24, year 3 = 25 36, year 4 = 37
48, year 5 = 49 60
P1 = 49, P2 = 60, INT = -3518.58
e)
What will be the total interest paid during the initial 5 year
term?
P1 = 1, P2 = 60, INT = -18091.27
Example: $15,000 borrowed at 10% interest compounded quarterly.
Loan requires payments of $2500 at end of every 3 months. What is
size of final payment?
Pv = -15000, pmt = 2500, i/y = 10, c/y = 4, p/y = 4, CPT n = 6.581682,
rounded to 7.
P1 = 1, P2 = 7, BAL = 1038.29 (overpaid on final payment)
So, final payment = 2500 1038.29 = $1467.11
Example: $50,000 bond, 7.2% quarterly interest. Redeemable at par in
10 years is purchased to yield 8% compounded quarterly. What is the
premium or discount? What is the purchase price?
$50,000 x 0.072 x (3/12) = $900 quarterly payments
Fv = 50,000, pmt = 900, i/y = 8, c/y = 4, p/y = 4, n (10 years x 4
quarters) = 40
CPT Pv = $-47,264.45 Pv < Fv = discount
50,000 47,264.45 = $2735.55 Discount
Example: National credit must choose between a $6000 investment
followed by $45/quarterly for 5 years, or a 5 year lease requiring
$435/quarterly and final payment of $600. At 9% compounded
quarterly, should National choose purchase or lease?
investment option
Fv = 0, pmt = 45, i/y = 9, c/y = 4, p/y = 4, n = 20, CPT Pv =
-718.367057
718.367057 + 6000 = $6718.37 total investment for option
lease option
Fv = 600, pmt = 435, i/y = 9, c/y = 4, p/y = 4, n = 20, CPT Pv =
-7328.704764
Investment option is preferred
Example: $100,000/year for 2 years, net returns beginning in year 3
are estimated at $65,000/year for 13 years. Residual value of initial
investment is $30,000 after 15 years. If return on investment of 14% is
needed, should the project be developed?
0 6
6
6
6
6
6
6
6
6
6
6
6
3
1
1
5
5
5
5
5
5
5
5
5
5
5
5
0
0
0
+
0
0
6
5
CFO = -100,000\ c01 = -100,000, f01 = 1\ c02 = 0, f02 = 1\ c03 =
65,000, f03 = 12\ c04 = 95,000, f04 = 1
NPV I = 14, CPT NPV = 108691.58

CPT IRR = 12.689641 = 12.69% rate of return

Example: initial outlay of $320,000, followed by $96,000 further
investment after 5 years. Has residual value of $70,000 after 10 years.
Net returns are estimated to be $64,000/year for 10 years. What is the
rate of return?
64
64
6
64
64
64
64
64
64
64
320
4
+
96
70
CFO = -320,000\ c01 = 64000, f01 = 4\ c02 (64000-96000) = -32,000,
f02 = 1\ c03 = 64,000, f03 = 4\
C04 (64,000 + 70,000) = 134,000, f04 = 1

Example: $33,000 investment with residual $7000 at end of project.

Expected $7000/year 1, $8000/year 2, $11000/following 6 years, and
$9000/following 4 years. What is rate of return?
7
8
1
1
1
1
1
1
9
9
9
7+
3
1
1
1
1
1
1
9
3
CFO = -33,000\ c01 = 7000, f01 = 1\ c02 = 8000, f02 = 1\ c03 =
11,000, f03 = 6\ c04 = 9000, f04 = 3\
C05 = 9000 + 7000, f05 = 1. CPT IRR = 27.124636 = 27.12%