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Present value:
1
(1 )
T
t
t
t
C
PV
r
=
=
+
NPV:
0
1
(1 )
T
t
t
t
C
NPV C
r
=
= +
+
Bond:
1
1
(1 ) (1 )
T T
C FV
PV
r r r
(
= +
(
+ +
Annuity:
(
+
=
T
r r
C
PV
) 1 (
1
1 If growth:
(
(
|
.
|
\
|
+
+
=
T
r
g
g r
C
PV
1
1
1 If deferred first payment to period :
1
1
(1 )
PV PV
r
=
+
Perpetuity:
r
C
PV = If growth:
g r
C
PV
=
Spot and forward rates:
2 3
1 0,1 2 0,1 1,2 3 0,1 1,2 2,3
; (1 ) (1 )(1 ) ; (1 ) (1 )(1 )(1 ) ; ... r f r f f r f f f etc = + = + + + = + + +
APR and EAR:
#
APR APR
Rate per period
of compounding periods k
= = 1 1
k
APR
EAR
k
| |
= +
|
\ .
YTM: y =r if r is constant. Otherwise solve for constant y that gives same PV
IRR: Same as YTM, but setting NPV =0
Nominal, real, and inflation: ( )
( )
( )
nominal
real
1
1
1
r
r
i
+
+ =
+
( )
Nominal
Real
1
t
t t
CF
CF
i
=
+
General compounding formula: ( )
N
period period N
r r
+ = +
1
1 1
Stocks: Periodic return:
1 1 0
0 1
0
P Div P
r
P
+
= Hence:
( )
0
1 1
t
t
t
Div
P
r
=
=
+
=
1
0
Accounting:
; 1 1
;
( ) ( )
Div Div
Payout ratio Plowback ratio Payout ratio
EPS EPS
Earnings EPS
ROE g Plowback ratio ROE
Book Equity BE Book Value per Share BVPS
= = =
= = =
Free Cash Flow (FCF): EBIT =revenues costs depreciation
FCF =EBIT taxes +depreciation +after-tax gain on sale net working capital capex
Taxes: ( )
1
after tax pre tax
r r tax rate =
Draw a TIMELINE!!!!!!!
Mean (or average or expected) return:
,
1
1
T
i i t
t
r r
T
=
=
or
, i x i x
x
r p r =
Variance:
( )
2
2
,
1
1
1
T
i i t i
t
r r
T
=
=
or
( )
2
2
, i x i x i
x
p r r =
Standard deviation:
2
i i
=
Covariance:
( )( ) , , ,
1
1
1
T
i j i t i j t j
t
r r r r
T
=
=
or
( )( ) , , , i j x i x i j x j
x
p r r r r =
Correlation:
,
,
i j
i j
i j
Mean return of a portfolio:
p i i j j
r wr w r = + +
Variance of a portfolio:
2 2 2
,
,
p i i i j i j
i i j i
w ww
= +
Variance of a portfolio of two stocks:
2 2 2 2 2
,
2
p i i j j i j i j
w w ww = + +
CAPM: | | ( )
i f i m f
E r r r r = + where
,
2
i m
i
m
=
Beta of a portfolio:
p i i j j
w w = + +
Sharpe ratio:
i
f i
i
r r
SR