FORMULA SHEET

1
Discount Factor (DF) =
(1+𝑟𝑟)𝑡𝑡

FV = 𝐶𝐶𝑡𝑡 x (1+r)t
C
t
PV = (1+r) t

Ct
PV = DF × Ct =
(1 + r )t
Net Present Value with two cash flows only:

C1
NPV = C 0 +
1+ r
C1 C2 C3
PV with multiple cash flows = PV = 1
+ 2
+ 3
+…
(1+r) (1+r) (1+r)

Profit
Return on project =
Investment
NPV = PV (receipts) – Required Investments (expenditures)
C1
PV of perpetuity = PV0 =
r

1 1 
PV of annuity = C ×  − t 
 r r (1 + r ) 

 (1 + r )t − 1
FV of annuity = C ×  
 r 

C1
Present value of growing perpetuity = PV0 =
r−g

 1 (1 + g) t  1  (1 + g) t 
PV of growing annuity = C ×  −  = C × 1 − 
 r − g (r − g ) x(1 + r )  r − g  (1 + r )t 
t

𝐴𝐴𝐴𝐴𝐴𝐴 𝑡𝑡
Effective Rate = �1 + � − 1 where APR stands for annual percentage rate
𝑡𝑡

C1 C2 1,000 + C N
PV of a bond = PV = + + ... +
(1 + r ) (1 + r )
1 2
(1 + r ) N
1× PV(C1 ) 2 × PV(C2 ) 3 × PV(C3 ) T × PV(CT )
Duration = + + + ... +
PV PV PV PV
duration
Modified duration = volatility (%) =
1 + yield

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 Div + Div Div + P
Dividend Discount Model = P = 1 2
+ ..... + H H

(1+ r ) (1+ r ) (1+ r )

0 1 2 H

Div1
Dividend Yield =
P0

Div1
Constant Growth Dividend Formula: P0 =
r−g
Div1
Required return on common stock: r= +g
P0

EPS
ROE =
Book Equity Per Share
Growth rate in dividends g = ROE x plowback ratio

Internal Rate of Return/Net Present Value Formula:

T
CFt
NPV = 0 = ∑ − I0
t (1 + IRR)t
NPV
Profitability Index =
Investment
NetROI = ROI – Cost of Capital

EVA = Income Earned - [Cost of Capital × Investment]

Economic Profit = ( ROI − r ) × Capital Invested

(𝐴𝐴𝐴𝐴𝑡𝑡𝐴𝐴𝐴𝐴𝐴𝐴 𝐴𝐴𝑅𝑅𝑡𝑡𝐴𝐴𝑟𝑟𝑅𝑅𝑛𝑛 −𝐸𝐸𝐸𝐸𝐸𝐸𝑅𝑅𝐴𝐴𝑡𝑡𝑅𝑅𝐸𝐸 𝐴𝐴𝑅𝑅𝑡𝑡𝐴𝐴𝑟𝑟𝑅𝑅)2
Variance of returns = σ 2 =∑
𝑅𝑅−1

Covariance of returns (stocks a and b):

(Actual Returna -Expected Returna )(Actual Returnb -Expected Returnb )
�
n-1

Covariance of returns (stocks a and b): cov1,2 = ρ12 σ1σ 2

Expected Portfolio Return = (x1 r1 ) + ( x 2 r2 )

Portfolio Variance = x12 σ12 + x 22 σ 22 + 2( x1x 2ρ12 σ1σ 2 )

σ im 𝜎𝜎𝑖𝑖 𝜎𝜎𝑚𝑚 𝜌𝜌𝑖𝑖𝑚𝑚

Stock beta = Bi = =
σ m2 2
𝜎𝜎𝑚𝑚

CAPM = r share = r f + β ( r m - r f )

rp − rf
Sharpe Ratio =
σp

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