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Exam Formula Sheet Spring 2010

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SOME USEFUL FORMULAS Rights R + S = X R = {N( M-S )}/(N+1 ) X = ( NM + S )/(N+1 ) Financial Future Value FV = PV (1 + i)n Present Value PV = FV (1 + i)-n Annuity Future Value FV = PMT {[(1 + i)n - 1]/ i} Annuity Present Value PV = PMT {[1 - (1 + i)-n]/ i} Perpetuity PV = Pmt /i Dividends No growth P0 = d1 /r Dividends constant growth P0 = d1 /(r - g) Effective interest rate ie = (1 + i)m - 1 Net Present Value NPV = PV of future cash flows less Cost of the investment PVI or Benefit Cost Ratio = PV (Future Cash Flows) / PV (Capital Outlay) Variance/CAPM Expected return E(R) = [(Pi) (Ri)] or E(R) = [(R)]/n Variance VAR 2 = [(Pi) (Ri- E(R))2] Standard Deviation SD = 2 Expected Return on a portfolio E(R) p = [Wi E(R) I] Beta A = COV (RARM) / M2 Capital Asset Pricing Model E(R) A = Rf + A (RM-Rf)

International E[St] = [(1+Rfc)/(1+Ra]t * S0 = [(1+hfc)/(1+ha]t * S0 = Ft Precise formula E[St] = [1+Rfc -Ra]t * S0 == [1+hfc-ha]t * S0 = Ft Approximate formula (1+RRRfc) = (1+RRRh) * [ (1+ hfc )/(1+hh)] RRRfc = [(1+RRRh) * (1+ hfc )/(1+hh)] -1 Where E[St] = Expected spot rate (/$) in period t Rfc = Risk free interest rate in foreign country Ra = Risk free interest rate in Australia hfc = Inflation rate in foreign country ha = Inflation rate in Australia S0 = Spot rate (/$) now Ft =

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