List of Formulas

Simple interest

Total interest:

I = CV · r · n

Rate of interest:

I
r=
CV · n

Term of maturity:

I
n=
CV · r

Current value:

I
CV =
r ·n

Future value:

FV = CV(1 + rn)

Rate of interest when FV is known:

FV/CV − 1
r=
n

Term of maturity when FV is known:

FV/CV − 1
n=
r

Mathematical Finance, First Edition. M. J. Alhabeeb.

© 2012 John Wiley & Sons, Inc. Published 2012 by John Wiley & Sons, Inc.

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LIST OF FORMULAS 133

Ordinary interest:
 
1
I0 = I e 1+
72
or I0 = 1.014Ie

Exact interest:
 
1
Ie = I 0 1+
73
I0
or Ie =
1.014

Equivalent time:

Pi ni
n= 
Pi

Interest rate by the dollar-weighted method:

E − [(B + D) − W ]
r=
Bt + D(t − t1 ) − W (t − t2 )

Bank discount
Discounted proceeds:

C = FV(1 − dn)
C = FV − D

Future value:

C
FV =
1 − dn

Discounting term:

1 − (C/FV)
n=
d

Discounting rate:

1 − (C/FV)
d=
n
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134 LIST OF FORMULAS

Interest rate:
d
r=
1 − dn
Discount rate in terms of interest rate:
r
d=
1 + rn
Discount rate in terms of a bid:

360 − 3.6B
d=
n
Compound interest
Future value:

FV = CV(1 + r)n

Current value:
FV
CV =
(1 + r)n

Discount factor:

1
DF =
(1 + r)n

Interest rate:

n FV
r= −1
CV
Term of maturity:

ln(FV/CV)
n=
ln(1 + r)

Effective interest rate:

 r m
R = 1+ −1
m
Continuous compounding—future value:

FV = CV · ern
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135
LIST OF FORMULAS

A[1 − (1 + r)−n ]
A[(1 + r)n − 1]


−r
(1 + r)n − 1]
CV = FV · e−rn

Payment of an ordinary annuity (FV is given):

FV · r
114

167

an r
Sn r
r
r
72

1
r

1
FV = A · Sn r

CV = A · an r
Continuous compounding—current value:

n=


n=

n=

A = FV ·

A = FV
Current value of an ordinary annuity:
Future value of an ordinary annuity:

FV =

A=
CV =
Rule of 114:

Rule of 167:
Rule of 72:

Annuities
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136 LIST OF FORMULAS

Payment of an ordinary annuity (CV is given):

CV · r
A=
1 − (1 + r)−n
1
A = CV ·
an r

Term of an ordinary annuity:


ln (F V · r/A) + 1
n=
ln(1 + r)

Future value of an annuity due:

(1 + r)n − 1
FVd = A (1 + r)
r
FVd = A · Sn r · (1 + r)

Current value of an annuity due:

1 − (1 + r)−n
CVd = A (1 + r)
r
CVd = A·an r · (1 + r)

Payment of an annuity due (FV is given):

FV · r
Ad =
(1 + r)n+1 − (1 + r)

Payment of an annuity due (CV is given):

CV · r
Ad =
(1 + r) − (1 + r)1−n

Term of annuity due (FV is given):

ln{1 + [FV · r/A(1 + r)]}

n=
ln(1 + r)

Term of an annuity due (CV is given):

ln{1 − [CV · r/A(1 + r)]}

n=−
ln(1 + r)
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137
LIST OF FORMULAS

CVdef = A · an r (1 + r)−d
r

A = r · CV∞
FVdef = A · Sn

A
CV∞

r
A

CV∞ =
r=
Current value of a deferred annuity:
Future value of a deferred annuity:

Current value of a perpetuity:

Rate of a perpetuity:
Perpetuity: