FORMULA SHEET : MAF101 FUNDAMENTALS OF FINANCE

(Note: FV = Future value; PV = Present Value; t = Time; n = Number of periods;

m = number of compounding periods; i and r = interest rate)

1. Simple interest
1.1 Calculation of simple interest:
2.4 Effective annual interest rate in terms of periodic rate:
I = P×r ×t
m
 r
Effective rate ie =1 +  −1
1.2 Future value of principal at simple interest:  m
FV = PV ( 1+r× t )
Nominal interest rate per annum:

1.3 Present value at simple interest:

r = m 1 + ie ) − 1
1
m
 
FV
PV = FV ( 1+ r × t )−1 orPV =
( 1+ r × t )

3. Annuities
1.4 Yield at simple interest
3.1 Present value of n payments of A at interest rate r:
1  FV 
r = × − 1 1−(1 + r ) − n 
t  PV  PV = A 
 r 

1.5 Number of periods in simple interest

3.2 Future value of n payments of A at interest rate r:
1  FV 
t = × − 1
r  PV   (1 + r ) n −1
FV = A 
 r 
2. Compound interest

3.3 Calculation of payment (A) when the future value is

2.1 Future value of principal at compound interest:
known:
FV
FV = PV ( 1+ r )n A=
 (1 + r ) n −1
 r 
 
2.2 Present value at compound interest:
3.4 Calculation of payment (A) when the present value
−n FV is known:
PV = FV ( 1+ r ) or PV =
( 1+ r )n
PV
A=
1 − (1 + r ) −n 
2.3 Calculation of r using compound interest:  r 
 
 FORMULA SHEET : MAF101 FUNDAMENTALS OF FINANCE
(Note: FV = Future value; PV = Present Value; t = Time; n = Number of periods;
m = number of compounding periods; i and r = interest rate)

3.5 Present value of an annuity due:

[1 − (1 + r ) − n ]  4.5 Risk measurement using probabilities

PV = A   (1 + r ) n
 r 
σk= ∑
i =1
( ki − k ) 2 Pri

3.6 Future value of an annuity due:

4.6 Coefficient of variation

 (1 + r ) n −1
FV = A  (1+ r )
 r 

4. Returns
4.7 Return of a portfolio
4.1 Historical return with income
n
kp = ∑ wi k i
i =1

4.2 Expected return using historical returns 4.8 Fisher effect

n
k = ∑ ki (I+R)=(1+r)(1+h)
i =1

5. Equities
4.3 Risk measurement using historical returns
5.1 Underpricing of an IPO
n

∑ (r )
2
t −r P −O
()
σ r = t =1

n −1
UND =
O

4.4 Expected return using probabilities:

n
k = ∑ ki Pri
i =1