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Formula Sheet Finance

The document provides formulas for calculating various financial metrics used in capital budgeting and investment analysis. It includes formulas for discount factors, net present value, internal rate of return, dividend discount model, bond pricing, portfolio return and risk measures, capital asset pricing model, and other ratios.

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mostafa daher
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46 views2 pages

Formula Sheet Finance

The document provides formulas for calculating various financial metrics used in capital budgeting and investment analysis. It includes formulas for discount factors, net present value, internal rate of return, dividend discount model, bond pricing, portfolio return and risk measures, capital asset pricing model, and other ratios.

Uploaded by

mostafa daher
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FORMULA SHEET

1
Discount Factor (DF) =
(1+𝑟𝑟)𝑡𝑡

FV = 𝐶𝐶𝑡𝑡 x (1+r)t
C
t
PV = (1+r) t

Ct
PV = DF × Ct =
(1 + r )t
Net Present Value with two cash flows only:

C1
NPV = C 0 +
1+ r
C1 C2 C3
PV with multiple cash flows = PV = 1
+ 2
+ 3
+…
(1+r) (1+r) (1+r)

Profit
Return on project =
Investment
NPV = PV (receipts) – Required Investments (expenditures)
C1
PV of perpetuity = PV0 =
r

1 1 
PV of annuity = C ×  − t 
 r r (1 + r ) 

 (1 + r )t − 1
FV of annuity = C ×  
 r 

C1
Present value of growing perpetuity = PV0 =
r−g

 1 (1 + g) t  1  (1 + g) t 
PV of growing annuity = C ×  −  = C × 1 − 
 r − g (r − g ) x(1 + r )  r − g  (1 + r )t 
t

𝐴𝐴𝐴𝐴𝐴𝐴 𝑡𝑡
Effective Rate = �1 + � − 1 where APR stands for annual percentage rate
𝑡𝑡

C1 C2 1,000 + C N
PV of a bond = PV = + + ... +
(1 + r ) (1 + r )
1 2
(1 + r ) N
1× PV(C1 ) 2 × PV(C2 ) 3 × PV(C3 ) T × PV(CT )
Duration = + + + ... +
PV PV PV PV
duration
Modified duration = volatility (%) =
1 + yield

Page 14 of 15
Div + Div Div + P
Dividend Discount Model = P = 1 2
+ ..... + H H

(1+ r ) (1+ r ) (1+ r )


0 1 2 H

Div1
Dividend Yield =
P0

Div1
Constant Growth Dividend Formula: P0 =
r−g
Div1
Required return on common stock: r= +g
P0

EPS
ROE =
Book Equity Per Share
Growth rate in dividends g = ROE x plowback ratio

Internal Rate of Return/Net Present Value Formula:


T
CFt
NPV = 0 = ∑ − I0
t (1 + IRR)t
NPV
Profitability Index =
Investment
NetROI = ROI – Cost of Capital

EVA = Income Earned - [Cost of Capital × Investment]

Economic Profit = ( ROI − r ) × Capital Invested


(𝐴𝐴𝐴𝐴𝑡𝑡𝐴𝐴𝐴𝐴𝐴𝐴 𝐴𝐴𝑅𝑅𝑡𝑡𝐴𝐴𝑟𝑟𝑅𝑅𝑛𝑛 −𝐸𝐸𝐸𝐸𝐸𝐸𝑅𝑅𝐴𝐴𝑡𝑡𝑅𝑅𝐸𝐸 𝐴𝐴𝑅𝑅𝑡𝑡𝐴𝐴𝑟𝑟𝑅𝑅)2
Variance of returns = σ 2 =∑
𝑅𝑅−1

Covariance of returns (stocks a and b):


(Actual Returna -Expected Returna )(Actual Returnb -Expected Returnb )
�
n-1

Covariance of returns (stocks a and b): cov1,2 = ρ12 σ1σ 2

Expected Portfolio Return = (x1 r1 ) + ( x 2 r2 )

Portfolio Variance = x12 σ12 + x 22 σ 22 + 2( x1x 2ρ12 σ1σ 2 )

σ im 𝜎𝜎𝑖𝑖 𝜎𝜎𝑚𝑚 𝜌𝜌𝑖𝑖𝑚𝑚


Stock beta = Bi = =
σ m2 2
𝜎𝜎𝑚𝑚

CAPM = r share = r f + β ( r m - r f )

rp − rf
Sharpe Ratio =
σp

Page 15 of 15

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