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					                                        AK/ADMS 3530.03 Finance
                                       Midterm Exam Formula Sheet



  Time Value of Money
                                                                       Future Value
FV = Investment  1  r 
                                   t
                                                                PV =
                                                                          1  r t
                        C                                                                            C1
PV of a perpetuity =                                            PV of a growing perpetuity =
                        r                                                                           rg

                       1      1      
PV of an annuity = C             t 
                        r r(1  r )                                                   (1  r ) t  1 
                                                                FV of an annuity = C                  
         1  (1  r )  t                                                                  r         
   = C                               (easier to calculate)
               r          
                                                                                 1      1      
                                                                Annuity factor =            t 
                                                                                  r r(1  r ) 
                           C1   1  g  
                                         t

PV of a growing annuity =       1                                            1  (1  r )  t 
                          r  g  1 r  
                                                                              =                   
                                                                                         r          
                                                                (lower version is easier to calculate)
PV of an annuity due = (1+r)  (PV of an annuity)
FV of an annuity due = (1+r)  (FV of an annuity)
                  1  Nominal rate
1 + Real rate =
                  1  Inflationrate
                                               
APR = Period Rate  m                          
                                               
EAR = 1  Period Rate   1                   
                               m
                                                where m = number of periods per year
                               1               
Period Rate = (1  EAR ) m  1                 
                                               
                                               




                                                         1
  Bonds and Stocks
                                                       1      1       Face Value
Price of a bond = PV (Coupons) + PV (Face Value) = C             t 
                                                                        
                                                        r r(1  r )     (1  r ) t

                   Annual coupon payment
Current yield =
                         Bond price
Yield to maturity (YTM) = interest rate for which the present value of the bond’s
payments equals the price
The approximate formula for the yield to maturity:
                                       (face value - current price)
         Annual coupon payment 
                                            years to maturity
YTM 
                        (face value  current price)
                                      2
                   Income  Capital gain or loss
Rate of return =
                          Initial price

                    Dividend payment
Dividend yield =
                        Stock price

Sustainable growth rate: g = ROE  Plowback ratio
                                 DIV 1   DIV 2            DIV H          PH
Dividend Discount Model: P0                     ...             
                                 1  r (1  r ) 2
                                                         (1  r ) H
                                                                      (1  r ) H
where H is the horizon date, and PH is the expected price of the stock at date H
                                             DIV1
                                                P0 
                                                  ,
Constant-Growth Dividend Discount Model:     rg
                                         where DIV1  DIV0  (1  g )

                                        DIV 1             DIV1 P1  P0
Expected Rate of Return Formula: r            g, or r      
                                         P0                P0     P0




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