FIN 125 formulas exam 2

TVM FV

PV(1+r)^t

TVM PV

FV / (1+r)^t

TVM r

(FV/PV)^(1/t) - 1

TVM t

ln(FV/PV) / ln(1+r)

Dollar amount of a coupon

(FV * coupon rate) / m

where m is the # of coupons per year

PV of coupon bond

C * [(1-(1+r)^-t) / r] + FV / (1+r)^t

where C is coupon dollar amount

Bond price from quote

$price = FV * Quote %

YTM

Have to use calculator:

PMT

FV

PV

N

and solve for i/yr

Current Yield

annual coupon / P₀

Zero coupon bond valuation current value

FV / (1+r)^t

pretty much a lump sum

ETY (Equivalent Taxable Yield) on corporate bond

r_m / (1 - T)

return on corporate bond (r_c) that makes you indifferent between buying corporate vs municipal bond

Critical Tax Rate

1 - (r_m/r_c)

Dirty price or price actually paid for bond

quoted price + accrued interest

Accrued interest on a bond

coupon per period * (months(days) passed since start of period / total months(days) of period)

Real rate

(Nominal rate - Inflation) / (1 + inflation)

constant dividend model

P_t = D_t+1 / R

Constant growth or Gordon Growth Model

P_t = D_t+1 / (r-g)

Required rate of return

r = (D₁ / P₀) + g

Multiple Stocks eval

P_t = Benchmark P/E * EPS_t

Next Dividend

D_t+1 = D_t * (1+g)

NPV

sum of all (CFt / (1+r)^t - cost

or

benefits - cost

Payback Period for Annuities

Initial Investment / CF per period

Payback Period for uneven CFs

A + B/C

where

A = Last full year before you fully recover investments

B = Remaining amount still unrecovered at end of year A

C = discounted cash flow during year A+1

Internal rate of return

Use calculator to find

CF_j for all CFs

then solve for IRR

Inflation protected tax system calculation

(nominal return - inflation) * (1-T)

Non inflation protected tax system calculation

(nominal return * (1-T)) - inflation

invoice price is also known as

Dirty price

Which year to use for PV of stock that starts paying dividends in y6 and then has constant growth

Year 5, from D6

Dividend yield

D1/P0

Capital gains yield

(D1/P0)-r

Or

Normal Gordon growth model and solve for g

Profitability index

Pv of future cash flows / initial investment

Which out of npv, irr, or PI can be used for a project with a - value on a year > 0

Only NPV

Which out of NPV, IRR, or PI can be used for comparing mutually exclusive projects (have 10k to spend, which project)

Only NPV