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N
u
Time Value of
m Continuous
Money Formula Annual Compounding Compounded (m) Times per Year
b Compounding
For:
e
r
e
nm
Future Value of a ⎛ i ⎞
1
Lump Sum. ( FVIFi,n ) F V = P V ( 1 + i )n FV = PV ⎜1 + ⎟ FV = PV( )in
⎝ m⎠
e
- nm
Present Value of a -n ⎛ i ⎞ -in
2
Lump Sum. ( PVIFi,n ) PV = FV ( 1 + i ) PV = FV ⎜1 + ⎟ PV = FV( )
⎝ m⎠
Present Value of an ⎡1 - ( 1 + i )- n ⎤ ⎡1 - ( 1 + (i / m) )- nm ⎤
5 Ordinary Annuity. ( PVA = PMT ⎢ ⎥ PVA = PMT ⎢ ⎥
PVIFAi,n ) ⎣ i ⎦ ⎣ i/m ⎦
Present Value
6 PV Annuity Due = PVA*(1+ i ) PV Annuity Due = PVA*(1+ ieffective )
Annuity Due
PMT PMT
7
Present Value of a
PVperpetuity = PVperpetuity =
Perpetuity. i [(1 + i )1/ m − 1]
Continuous growing
8 PV=PMT /(i-g)
e
perpetuity
EAR = -1
m
Effective Annual Rate ⎛ i ⎞ i
9
given the APR. EAR = APR EAR = ⎜ 1 + ⎟ - 1
⎝ m⎠
11 Rate of return
12 Current yield
14 Expected return
15 Dividend Yield
21 Return on Equity
26 Percentage return
27 Variance σ2
28 Standard deviation σ
36 General portfolio β
38 CAPM model r = rf + β (rm – rf ) where rm is the market return and rf is the risk free rate
39 Risk premium ( r - rf ) r - rf = β (rm – rf ) where rm is the market return and rf is the risk free rate