ICT Formula Sheet

Description Formula

Fisher equation (Exact or Precise) Real rate = (1 + i ) / (1 + ∆Pe ) – 1

(Approximate) Real rate ≈ i - ∆Pe

Future Value (simple interest) FVn = PV0 ∗ (1 + i ∗n)

PV0 = FVn / (1+i)

n
Present value single amount (compound interest)

FVn = PV0 * (1+i)

n
Future value single amount (compound interest)

Future value (compounding more frequently than once

per period)
FVn = PV0 * (1 + i / m) (m * n)

m
 j
EAR  1    1 where j = quoted rate
Effective Annual Rate  m

 1 
1  (1  i ) n 
Present value of an ordinary annuity PVAn  CF   
 i 
 
 
 1 
1  (1  i) n 
Present value of an annuity due PVA Due,n  CF   1  i ) 
 i 
 
 

 (1  i) n  1
Future value of an ordinary annuity FVAn  CF   
 i 

 (1  i ) n  1
Future value of an annuity due FVA Due, n  CF   1  i 
 i 

𝐶𝐹
Present value of a perpetuity 𝑃𝑉0 =
𝑖
 𝐶𝐹1
Present value of a growing perpetuity 𝑃𝑉0 =
(𝑖 − 𝑔)

 1 
1  (1  i ) n  F
Price of a bond BP0  C   
 (1  i )
n
 i
 
 1 
1  (1  i/m ) mn  F
Price of a bond making multiple payments per year BP0  C / m   
 i/m  (1  i/m ) mn
 
 
Price of Bond = Fmn/(1 + i/m)mn
Price of a zero coupon bond
(with pricing based on m compounding periods per year)

Equivalent Annual Yield (EAY) EAY = (1 + Quoted rate/m)m - 1

∞
𝐷𝑡
General dividend valuation model 𝑃0 = ∑
(1 + 𝑅)𝑡
𝑡=1

D
Value of share – zero growth P0 
R

Value of share using Constant growth dividend discount D1 D 1  g 

P0   0
model (DDM) Rg Rg

Value of share time t using Constant growth dividend Dt 1

Pt 
discount model (DDM) Rg

Dt  D0 1  g 
t
Dividend at time t, based on constant growth, g

Value of share using mixed (supernormal/multistage) 𝐷1 𝐷2 𝐷𝑡 𝑃𝑡

𝑃0 = 1
+ 2
+ ⋯+ 𝑡
+
growth model (1 + 𝑅) (1 + 𝑅) (1 + 𝑅) (1 + 𝑅)𝑡