Formulas

Annuity

C
PV = ¿
r

C
FV = [ (1+ r )N −1 ]
r

PV
C=
1
¿¿
r

FV
C=
1
¿¿
r
N
C 1+ g
PV =
r−g
1−
1+r[ ( )]
Binomial Model

Replicating portfolios

Cu −Cd
∆=
Su −S d

C d−S d ∆
B=
1+rf

C=S ∆+ B

Black-Scholes

C=S × N ( d 1 )−PV ( K ) × N (d 2)

d 1=
( PVS( K ) ) + σ √ T
ln ⁡

σ √T 2

d 2=d 1−σ √T

CAPM

ℜ=rf + β ×( Rm−rf )

Coupon Bond Price

C
PV =
¿¿
Effective Annual Interest Rate
 APR k
EAR= 1+( k ) -1

Future Value

FV =PV × ¿

Leverage and the Cost of Equity (no taxes)

D
ℜ=Ru+ ( Ru−Rd)
E

Leverage and the Cost of Equity (taxes)

D
ℜ=Ru+ ( Ru−Rd)(1-T)
E

Perpetuity

C
r

Perpetuity with growth

C
r−g

Present Value

FV
PV =
¿¿
Put Call Parity

P=C−S+ PV ( K )

WACC (no taxes)

E D
WACC= ℜ+ Rd
E+ D E+ D

WACC (taxes)

E D
WACC= ℜ+ Rd (1−T )
E+ D E+ D

Working Capital Ratio

Accounts Receivable
Accounts Receivable Days=
Average Daily Sales
 Inventory
Inventory Days=
Average Daily Cost of Goods Sold

Accounts Payable
Accounts Payable Days=
Average Daily Cost of Goods Sold

Cash Conversion Cycle = Accounts Receivable Days + Inventory Days – Accounts Payable Days

Optimal Portfolio Choice

Expected Return on a Portfolio

Value of investment i
x i= 11.1
Total value of portfolio

E [ R p ]=∑ xi E [ R i ] 11.3
i

Volatility of a Two-Stock Portfolio

[
Cov ( Ri , R j ) =E ⟨ Ri −E [ R i ] ⟩ ⟨ R j−E [ R j ] ⟩ ] 11.4

Cov ( R i , R j )
Corr ( Ri , R j ) = 11.6
SD ( Ri ) SD( R j )

2 2
SD ( R p )= x 2j SD ( R j ) + x 2w SD ( Rw ) +2 x j x w Corr ( R j , R W ) SD(R j ) SD(RW )
√
11.9

Volatility of a Large Portfolio

1 1
n n ( )
Var ( R p )= ( Average variance of individual stocks )+ 1− ( Average covarince between the stocks )
11.12

SD ( R p )=∑ x i ∙ SD( Ri )∙ Corr ( Ri , R p ) 11.13

i

SD(R i) ×Corr (Ri , R Mkt ) Cov(R i , R Mkt )

β i= =
SD( R Mkt ) Var ( R Mkt )
11.23