Equation Formula

Present Value FV 1
PV FV
1 k 1

Future Value (Ordinary Annuity) 1 k 1

PMT

Present Value (Ordinary Annuity)

PMT  1 
PV0 = 1  
k  1  k n 

Future Value (Annuity Due)

 1  k n  1 
FVn = PMT   1  k 
 k 

Present Value (Annuity Due)

PMT  1 
PV0 = 1   1  k 
k  1  k n 

Present Value (Perpetuity)

PMT
PV0 
k
Growing Perpetuity
PMT0 1  g  PMT1
PV0  
kg kg

Growing annuity
PMT1   1  g  
n

PV0   1    
k  g   1  k  

Effective Annual Rate m

 QR 
k  1   1
 m 
Effective Period Rate (for any period f) m
 QR  f
k  1   1
 m 
Bond Valuation
I  1  F
PV0 = 1  n 

 1  kb   1  kb 
n
kb

Fisher Relationship RF = [ (1 + Real rate)(1 + Expected inflation) ] – 1

Market Price of Preferred Shares
Dp
Pps 
kp

1 
 
 Constant Growth Dividend Discount Model
D0 1  g  D1
P0  
kc  g kc  g
Sustainable Growth Rate g =b × ROE
P/E Ratio Approach P0 = Estimated EPS1 × Justified P/E ratio = EPS1 ×
P0/E1
P/E Ratio (Using Constant Growth DDM)
P0 P D / EPS1
  1
EPS1 E kc  g
Total Return Total return  Income yield + Capital gain (or loss) yield
CF  P  P
 1 1 0
P0

Expected Return (Individual) n

ER    r1  Probi 
i 1

Standard Deviation for Individual Returns Ex-Post

 
n 2
 ri  r
Ex post   i 1

n 1
Standard Deviation for Individual Returns Ex n
Ante
  Prob  r  ER 
2
Ex ante   i i
i 1

Expected Portfolio Return

w ∗ ER

Standard Deviation of a Two-Security Portfolio

2
(Using Covariance)

Covariance of Returns
  
n
COVAB   Probi rA,i  r A rB ,i  r B
i 1

Covariance of Returns (Using Correlation COVAB = ρAB σA σB

Coefficient)
Sharpe Ratio ER p  RF
Sharpe ratio 
p

Beta COVi,M  i,M i

i  
 M2 M

Portfolio Beta  p  w11  w2  2  ...  wn  n

2 
 
 CAPM ki  RF   ER M  RF  i

Alpha αi = (Ri − RF) − [βi(RM − RF)]

Net Present Value

NPV
1

Profitability Index PV cash inflows

PI
PV cash outflows
Initial Cash Outlay CF0 = C0 + ΔNWC0 + OC
Annual After-Tax Cash Flows CFt = CFBTt (1 − Τ) + CCAt (T)
Ending Cash Flow (ignoring tax implications) ECFn = SVn + ΔNWCn

Net Present Value NPV = PV(Annual CFs) + PV(ECFn) − CF0

WACC with Preferred Shares
S P D
WACC  K e  K p  Ki
V V V

3