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EC3100 Financial Management All FormulasWeek 2:
Future Value of a Cash Flow: C x (1 + r)n (C is cash flow, r is rate of return)
C
Present Value of a Cash Flow:
( 1+ r )n
C1 C2 Cn
Present Value of a Cash Flow Stream: 1
+ 2
+ …+
( 1+ r ) ( 1+r ) ( 1+r )n
C1 C2 Ct
Net Present Value: −C 0+ + + …+ (−C 0 is the initial investment, t is time)
(1+r ) ( 1+ r ) 2
( 1+r )t
C
Present Value of a Perpetuity:
r
1
Present Value of an Annuity: P(1− ) (P is the principal value)
( 1+r )n
1
Future Value of an Annuity: C x [(1 + r)n – 1]
r
C
Present Value of a Growing Perpetuity: (g is a constant growth rate)
r−g
( )
n
1 1+ g
Present Value of a Growing Annuity: C × (1− )
( r −g ) ( 1+r )
Week 3:
Effective Annual Rate: (1 + r)n – 1
APR
Annual Percentage Rate: Interest Rate per Compounding Period = K periods
( )
Year
( ) (k = 1 if annual, k = 2 if semi-annual, k = 12 if
k
APR
Converting APR to EAR: 1+ EAR= 1+
k
monthly, k = 365 if daily)
r−i
The Real Interest Rate: ≈ r −i (r is nominal interest rate and i is annual inflation rate).
l+i
Week 4:
Coupon Rate × Face Value
Coupon Payment:
Number of Coupon Payments per Year
Face Value
Price of a Zero Coupon Bond: (YTM = Yield to Maturity)
( 1+ YTMn )n
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