Finance BA 500, Midterm Formula Sheet

Present value:
1
(1 )
T
t
t
t
C
PV
r
=
=
+

NPV:
0
1
(1 )
T
t
t
t
C
NPV C
r
=
= +
+

Bond:
1
1
(1 ) (1 )
T T
C FV
PV
r r r
(
= +
(
+ +


Annuity:
(

+
=
T
r r
C
PV
) 1 (
1
1 If growth:
(
(

|
.
|

\
|
+
+

=
T
r
g
g r
C
PV
1
1
1 If deferred first payment to period :
1
1
(1 )
PV PV
r

=
+

Perpetuity:
r
C
PV = If growth:
g r
C
PV

=
Spot and forward rates:
2 3
1 0,1 2 0,1 1,2 3 0,1 1,2 2,3
; (1 ) (1 )(1 ) ; (1 ) (1 )(1 )(1 ) ; ... r f r f f r f f f etc = + = + + + = + + +
APR and EAR:
#
APR APR
Rate per period
of compounding periods k
= = 1 1
k
APR
EAR
k
| |
= +
|
\ .


YTM: y =r if r is constant. Otherwise solve for constant y that gives same PV

IRR: Same as YTM, but setting NPV =0
Nominal, real, and inflation: ( )
( )
( )
nominal
real
1
1
1
r
r
i
+
+ =
+

( )
Nominal
Real
1
t
t t
CF
CF
i
=
+

General compounding formula: ( )
N
period period N
r r

+ = +
1
1 1
Stocks: Periodic return:
1 1 0
0 1
0
P Div P
r
P

+
= Hence:
( )
0
1 1
t
t
t
Div
P
r

=
=
+

Dividend Growth Model:

g r
Div
P

=
1
0

Accounting:
; 1 1
;
( ) ( )
Div Div
Payout ratio Plowback ratio Payout ratio
EPS EPS
Earnings EPS
ROE g Plowback ratio ROE
Book Equity BE Book Value per Share BVPS

= = =

= = =

Free Cash Flow (FCF): EBIT =revenues costs depreciation
FCF =EBIT taxes +depreciation +after-tax gain on sale net working capital capex

Taxes: ( )

1
after tax pre tax
r r tax rate =

Draw a TIMELINE!!!!!!!
Mean (or average or expected) return:
,
1
1
T
i i t
t
r r
T
=
=

or
, i x i x
x
r p r =

Variance:
( )
2
2
,
1
1
1
T
i i t i
t
r r
T

=
=

or
( )
2
2
, i x i x i
x
p r r =

Standard deviation:
2
i i
=
Covariance:
( )( ) , , ,
1
1
1
T
i j i t i j t j
t
r r r r
T

=
=

or
( )( ) , , , i j x i x i j x j
x
p r r r r =

Correlation:
,
,
i j
i j
i j

Mean return of a portfolio:
p i i j j
r wr w r = + +
Variance of a portfolio:
2 2 2
,
,
p i i i j i j
i i j i
w ww

= +


Variance of a portfolio of two stocks:
2 2 2 2 2
,
2
p i i j j i j i j
w w ww = + +

CAPM: | | ( )
i f i m f
E r r r r = + where
,
2
i m
i
m

=
Beta of a portfolio:
p i i j j
w w = + +
Sharpe ratio:
i
f i
i
r r
SR