BFC5926 Financial Institutions and Markets

Formulae Sheets
Simple Interest
1. Calculation of simple interest I = Pit

2. Accumulation of principal at simple interest S = P (1 + it)

S
3. Present value at simple interest P  S(1  it ) 1 or P 
(1  it )
FV
4. Price of a discount security (e.g. bank bill) P
 ni 
1  
 365

36500  FV
Alternative formula 
36500  days  % IR

FV  P 36500
5. Discount rate  
FV n
FV  P 36500
6. Yield  
P n
Compound Interest
7. Accumulation of principal over n periods: FV = PV (1 + i)n

PV  FV 1  i n or PV 
FV
8. Present value
1  i n
Simple Annuities and Bonds
9. Present value of an ORDINARY annuity and Present value (annuity DUE)

PV 

C 1  i n  1  PV 

C 1  i n  1  1 i
i 1  i n
i 1  i n

10. Future value of an ORDINARY annuity and Future value (annuity DUE)

FV 

C 1  i n  1  FV 

C 1  i n  1 
1 i 
i i

11. Price of a coupon bond = PV (bond FV) + PV (coupons)

PB 

C 1  i n  1  FV
i1  i n 1  i n

BFC5926
BFC5926 Financial Institutions and Markets

k tC t

12. Duration of a coupon bonds
t 1 1  i t
k Ct

t 1 1  i t
Equity pricing formulae
Dividend valuation model (with constant dividends in perpetuity)

Div
13. Share price =
ri

14. Capital Asset Pricing Model E( R)  rf   ( rm  rf )

Bank capital adequacy ratio

15. CAR
Total capital (Tier 1  Tier 2)

r w assets for credit risk  r w asset equivalent for market risk  r w asset equivalent for operationa l risk

Expected rate of return and standard deviation

 n
16. Expected rate of return = K   Pi K i
i 1

n 
17. Standard deviation =  (k i  k ) 2 Pi
i 1

Foreign exchange market

 1  rt terms 
f com / terms  scom / terms  
 1  rt com 
18.

𝑓𝑛 −𝑆 𝐷𝑎𝑦 𝑖𝑛 𝑦𝑒𝑎𝑟
19. 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 = × × 100
𝑆 𝑛

20. (1 + i ) = (f/s) (1 + i )
commodity terms

Symbols Used
I = total amount of simple interest
P or A = the principal, or present value of S or the discounted value of S
i = the rate of interest per period (normally per annum) expressed as a decimal
S = the amount, or the accumulated value of P, or the maturity value of P.
FV = face value of a discount security
n = number of days to maturity of a discount security or number of time periods for a
compound interest calculation
BFC5926
BFC5926 Financial Institutions and Markets

t = number of time periods for a simple interest calculation

Covariance of ri and rm
i =
Variance of ri

ri = return on security i
rf = the risk free interest rate
rm = the return on the market portfolio
Ct = cash flow at time period t
R = periodical payment in an annuity
f = forward rate
s = spot rate
t = forward period (day/ day in year)

APRA APS 112 Standard risk-weights for residential mortgages

LVR (%) Standard eligible mortgages Non-standard eligible mortgages

Risk-weight (no Risk-weight Risk-weight (no Risk-weight

mortgage (with at least mortgage (with at least
insurance) 40% of the insurance) 40% of the
mortgage insured mortgage
% %
by an acceptable insured by an
LMI) acceptable LMI)
% %
0 – 60 35 35 50 35
60.01 – 80 35 35 75 50
80.01 – 90 50 35 100 75
90.01 – 100 75 50 100 75
> 100.01 100 75 100 100

LVR = loan to valuation ratio

LMI = lender’s mortgage insurance

Please note that the formula listed on this page are to assist students in their exam. Students are free to
use other approaches.
The presence of a formula on these pages does not necessarily mean that they will be required in
answering any of the actual questions asked in the final examination.

BFC5926