Financial Formulas

Formula to calculate maturity value on “Term deposit”:

Maturity value = P*(1+R%)^N

Here, P is the amount invested

R is the rate of interest charged per annum
N is the time duration in years
This formula is for annual compounding
For eg.: P=Rs 50,000 ; R = 9% ; N = 10 years
But, since banks compound quarterly, the formula becomes: =
P*(1+R/4)^(4*N)
Therfore Maturity value =50000*(1+9%/4)^(4*10) = Rs 1,21,759. 45/-

Formula to calculate maturity value on “Recurring deposit”:

Maturity value = P*((1+R)^N-1)/(1-(1+R)^(-1/3))
Here, P is the amount invested each month (Rs 2,000).
R is the interest rate (8 per cent).
For eg,: P= Rs 3000 ; R = 8%
However, as it is compounded quarterly, the interest rate would be = 8 / 400
which gives 0.02 N is the number of quarters over the duration, that is 40 quarters over 120 months.

Therfor Maturoty amount =3000*((1+0.02)^40-1)/(1-(1+0.02)^(-1/3)) = Rs 5,50,850 /-

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Formula to calculate maturity value on “Compound annualised growth rate (CAGR)":
Returns = (((M / I)^(1 / N))-1)*100

Here, M is the maturity value (Current value of NAV)

I is the initial value (Purchase value of NAV)
N is the time duration in years
For eg. : I = Rs 30 ; M = 90 ; N = 5 Years
Therfor CAGR =(((90/30)^(1/5))-1)*100 = 24.57 per cent.

Formula to calculate “ Home loan EMI”:

EMI =(A*R)*(1+R)^N / ((1+R)^N-1)

Here, A is the loan amount

R is the rate of interest
N = Period of loan in years
For e.g.. : A = 25 lakhs; R = 9.70 ; N = 20 years

Convert R into monthly rate (= 9.70%/12 or =9.7/1200). This will be 0.0080

The EMI will be = (2500000*0.0080)*(1+0.0080)^240 / ((1+0.0080)^240-1)= Rs 23,466 /month

EMI= Rs. 23,466/-.

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Formula to calculate “Discounted rate of interest”:

Formula for discounted rate per month: =(R/400)/((1+R/1200)^2+(1+R/1200)+1)

Where R = Interest rate per annum

For e.g. : R= 5% per annum

=(5/400)/((1+5/1200)^2+(1+5/1200)+1)= .00415

On a deposit of, say, Rs. 1 lakh at 5%, instead of receiving Rs. 416.66 each month,
the discounted income would be Rs. 414.93.

Formula to calculate “Post tax returns”:

Formula: ROI-(ROI*TR)

Here, ROI is the rate of interest

TR is the tax rate
For e.g. ROI = 10% per annum; TR = 30.9%

Hence, post-tax return =10-(10*30.9%)=6.91

So, post-tax yield will = 6.91 %

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Formula to calculate “Annualized yield”:

Yield = ((1+R/N)^n-1)*100

Here, R is the rate of interest,

N is the number of compounding periods per year
n is the number of quarters in the total period.

If compounding is quarterly: Yield = ((1+0.10/4)^4-1)*100= 10.38%

If compounding is monthly: Yield = ((1+0.10/12)^12-1)*100= 10.47%

Formula to calculate “Pre-tax yield”:

Pre tax yield = ROI/(100-TR)*100

Here ROI = Rate of return

TR = Tax rate
For e.g. : ROI = 9% ; TR = 30.9%
Using this formula, you need to type in =9/(100-30.9)*100 =13.02%
For someone paying tax at 30.9 per cent, pre-tax yield from PPF would be 13.02 %.

Formula to calculate “Inflated Income”:

Inflation: PA* (1+IR)^ N

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 Here, PA = Present Amount
IR = Inflation Rate
N= Number of years
For e.g.: PA = 70000/ month; IR= 5%; N = 20
Hence income needed post 20 years with the same inflation rate=
70000*(1+5%)^20 = Rs.1,85,730 / month

Formula to calculate “Purchasing power”:

Reduced amount (Purchase power)=PA/(1+IR)^N

Here, IR = Inflation Rate

N= Number of years
For e.g.: PA = 70000/ month; IR= 5%; N = 20
Hence purchasing power post 20 years with the same income=
70000/(1+5%)^20 = Rs. 26,382 /month

Formula to calculate “Real rate of return”:

Real rate of return =((1+ROR%)/(1+IR%)-1)*100

Here, ROR = Rate of return

IR= Inflation Rate
For e.g.: ROR = 9.7% per annum; IR = 10%

Real rate of return =((1+9%)/(1+11%)-1)*100 = - 0.273%

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