FINANCE 1 FORMULAS
,TABLE OF CONTENTS
Chapter 1: Introduction ................................................................................................................................. 3
Chapter 3: Financial decision making and the law of one price ...................................................................... 3
Chapter 4: Time, Money and Interest rates .................................................................................................... 3
Chapter 5: Interest rates ................................................................................................................................ 4
Chapter 6: Valuing Bonds .............................................................................................................................. 5
Chapter 7: Investment Decision Rules ............................................................................................................ 5
Chapter 9: Valuing stocks .............................................................................................................................. 6
Chapter 10: Capital Markets and pricing of risk ............................................................................................. 7
Chapter 11: Optimal portfolio choice and the capital asset pricing model ...................................................... 8
Chapter 12: Estimating the cost of capital ..................................................................................................... 9
Chapter 13: Investor Behaviour and Capital Market Efficiency ..................................................................... 10
, CHAPTER 1: INTRODUCTION
No formulas
CHAPTER 3: FINANCIAL DECISION MAKING AND THE LAW OF ONE PRICE
- Present value:
𝐶
𝑃𝑉 =
1+𝑟
- Net present value (NPV):
𝑁𝑃𝑉 = 𝑃𝑉(𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠) − 𝑃𝑉(𝑐𝑜𝑠𝑡𝑠)
CHAPTER 4: TIME, MONEY AND INTEREST RATES
- Future Value of a Cash Flow:
𝐹𝑉! = 𝐶 ∗ (1 + 𝑟)!
- Present Value of a Cash flow:
𝐶
𝑃𝑉 =
(1 + 𝑟)!
- Present Value of a Stream of Cash Flows:
"
𝐶!
𝑃𝑉 = 8
(1 + 𝑟)!
!#$
- Present Value of a Perpetuity:
𝐶
𝑃𝑉(𝐶 𝑖𝑛 𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦) =
𝑟
- Present Value of an annuity:
1 1
𝑃𝑉 (𝐴𝑛𝑛𝑢𝑖𝑡𝑦) = 𝐶 ∗ =1 − >
𝑟 (1 + 𝑟)"
,TABLE OF CONTENTS
Chapter 1: Introduction ................................................................................................................................. 3
Chapter 3: Financial decision making and the law of one price ...................................................................... 3
Chapter 4: Time, Money and Interest rates .................................................................................................... 3
Chapter 5: Interest rates ................................................................................................................................ 4
Chapter 6: Valuing Bonds .............................................................................................................................. 5
Chapter 7: Investment Decision Rules ............................................................................................................ 5
Chapter 9: Valuing stocks .............................................................................................................................. 6
Chapter 10: Capital Markets and pricing of risk ............................................................................................. 7
Chapter 11: Optimal portfolio choice and the capital asset pricing model ...................................................... 8
Chapter 12: Estimating the cost of capital ..................................................................................................... 9
Chapter 13: Investor Behaviour and Capital Market Efficiency ..................................................................... 10
, CHAPTER 1: INTRODUCTION
No formulas
CHAPTER 3: FINANCIAL DECISION MAKING AND THE LAW OF ONE PRICE
- Present value:
𝐶
𝑃𝑉 =
1+𝑟
- Net present value (NPV):
𝑁𝑃𝑉 = 𝑃𝑉(𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠) − 𝑃𝑉(𝑐𝑜𝑠𝑡𝑠)
CHAPTER 4: TIME, MONEY AND INTEREST RATES
- Future Value of a Cash Flow:
𝐹𝑉! = 𝐶 ∗ (1 + 𝑟)!
- Present Value of a Cash flow:
𝐶
𝑃𝑉 =
(1 + 𝑟)!
- Present Value of a Stream of Cash Flows:
"
𝐶!
𝑃𝑉 = 8
(1 + 𝑟)!
!#$
- Present Value of a Perpetuity:
𝐶
𝑃𝑉(𝐶 𝑖𝑛 𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦) =
𝑟
- Present Value of an annuity:
1 1
𝑃𝑉 (𝐴𝑛𝑛𝑢𝑖𝑡𝑦) = 𝐶 ∗ =1 − >
𝑟 (1 + 𝑟)"
