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    Formula Sheet (3)

    Uploaded by

    Ebbe Reuterborg

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Formula Sheet (3)

    Uploaded by

    Ebbe Reuterborg
    2 views5 pages

    Copyright

    © © All Rights Reserved

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    PDF, TXT or read online from Scribd

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    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    2 views5 pages

    Formula Sheet (3)

    Uploaded by

    Ebbe Reuterborg

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 5

    Formula sheet

    Finance I
    2

    Present Value calculation

    Present value of single cash flow (N periods


    Discount factor Interest Rate Factor
    from the future)

    1 𝐶
    (1 + 𝑟)
    (1 + 𝑟) (1 + 𝑟)'

    Present value of an annuity

    1 1
    𝐶∙ ∙ )1 − +
    𝑟 (1 + 𝑟)'

    Present value of a growing annuity with growth rate g

    1 1+𝑔 '
    𝐶∙ ∙ .1 − / 0 1
    (𝑟 − 𝑔) 1+𝑟

    Present value of a growing perpetuity with growth rate g


    1
    𝐶∙
    (𝑟 − 𝑔)
    The Equivalent Annual Annuity

    𝑁𝑃𝑉
    𝐸𝐴𝐴 =
    1 1
    ∙ )1 − +
    𝑟 (1 + 𝑟)'
    One-period dividend model Constant dividend growth model

    𝐷𝑖𝑣< + 𝑃< 𝐷𝑖𝑣<


    𝑃8 = 𝑃8 =
    (1 + 𝑟= ) (𝑟= − 𝑔)
    Dividend yield Capital gain rate

    𝐷𝑖𝑣< (𝑃< − 𝑃8)


    𝑃8 𝑃8
    Free Cash Flow Firm’s Enterprise Value

    EBIT´(1-t)+Depreciation
    Market Value of Equity + Debt - Cash
    – Capital Expenditure – Increases in NWC
    3

    Future Value calculations (N periods into the future)

    Future value Future value of Annuity

    1
    𝑃𝑉 ∙ (1 + 𝑟)' 𝐶∙ ∙ [(1 + 𝑟)' − 1]
    𝑟

    Conversion of interest rates

    Nominal and real rates Nominal rate after taxes

    (𝑟 − 𝑖)
    𝑟@ = 𝑟 ∙ (1 − 𝜏)
    (1 + 𝑖)

    Effective annual rate to annual percentage


    Effective annual rate to effective period rate
    rate

    J 𝐴𝑃𝑅 J
    1 + 𝐸𝐴𝑅 = C1 + 𝑟DE@FGH I 1 + 𝐸𝐴𝑅 = /1 + 0
    𝑛

    Bonds

    Coupon bonds Zero-coupon bond


    1 1 𝐹𝑉 𝐹𝑉
    𝑃 = 𝐶𝑃𝑁 ∙ ∙ )1 − + + 𝑃=
    𝑦 (1 + 𝑦)' (1 + 𝑦)' (1 + 𝑌𝑇𝑀)'

    Options Payoff

    Buy call option Sell call option

    max (𝑆 − 𝐾, 0) −max (𝑆 − 𝐾, 0)

    Buy put option Sell put option

    max (𝐾 − 𝑆, 0) −max (𝐾 − 𝑆, 0)
    4

    Statistics

    Expected return Variance


    [ [

    𝐸 [𝑟] = 𝜇 = Y 𝑝F ∙ 𝑟F 𝑉𝑎𝑟[𝑟] = 𝜎 = Y 𝑝F ∙ (𝑟 − 𝐸[𝑟])_


    _

    F\< F\<

    = 𝑝< ∙ 𝑟< + 𝑝_ ∙ 𝑟_ + ⋯ + 𝑝[ ∙ 𝑟[ = 𝑝< ∙ (𝑟< − 𝐸[𝑟])_ + 𝑝_ ∙ (𝑟_ − 𝐸[𝑟])_ + ⋯ + 𝑝[ ∙ (𝑟[ − 𝐸[𝑟])_

    Variance estimation

    c
    1 1
    𝑉𝑎𝑟 (𝑟) = 𝜎 _ = Y(𝑟a − 𝑟̅ )_ = [(𝑟 − 𝑟̅ )_ + (𝑟_ − 𝑟̅ )_ + ⋯ + (𝑟c − 𝑟̅ )_ ]
    (𝑇 − 1) (𝑇 − 1) <
    a\<

    Average return Standard deviation

    c
    1 𝑟< + 𝑟_ + ⋯ + 𝑟c
    𝑟̅ = Y 𝑟a = 𝜎 = d𝑉𝑎𝑟(𝑟) = d𝜎 _
    𝑇 𝑇
    a\<

    Covariance
    [

    𝜎F,e = 𝐶𝑂𝑉(𝑟F , 𝑟e ) = Y 𝑝𝑘 (𝑟F,h − 𝜇𝑖 )(𝑟e,h − 𝜇𝑗 )


    h\<

    = 𝑝1 C𝑟F,< − 𝜇𝑖 I j𝑟e,< − 𝜇𝑗 k + 𝑝2 C𝑟F,_ − 𝜇𝑖 I j𝑟e,_ − 𝜇𝑗 k + ⋯ + 𝑝𝑠 C𝑟F,[ − 𝜇𝑖 I j𝑟e,[ − 𝜇𝑗 k

    Covariance estimation
    𝑇
    1
    𝜎F,e = 𝐶𝑂𝑉(𝑟F , 𝑟e ) = Y (𝑟𝑖,𝑡 − 𝑟o 𝑖 )(𝑟𝑗,𝑡 − 𝑟o 𝑗 )
    (𝑇 − 1)
    𝑡=1
    1
    = pC𝑟 − 𝑟rI
    q ∙ C𝑟e,< − 𝑟
    rI
    s + C𝑟F,_ − 𝑟
    rI
    q ∙ C𝑟e,_ − 𝑟
    rI
    s + ⋯ + C𝑟F,c − 𝑟
    rIC𝑟e,c − 𝑟
    rIt
    (𝑇 − 1) F,< q s

    Correlation

    𝜎𝑖,𝑗
    𝜌𝑖,𝑗 =
    𝜎𝑖 ∙ 𝜎𝑗
    5

    Portfolio theory

    Return of a portfolio of l assets Expected Return of a portfolio of l assets

    𝑟D = 𝑥< 𝑟< + 𝑥_ 𝑟_ + ⋯ + 𝑥w 𝑟w 𝐸C𝑟D I = 𝑥< 𝐸 (𝑟<) + 𝑥_ 𝐸 (𝑟_) + ⋯ + 𝑥w 𝐸 (𝑟w )

    Variance of a portfolio with two assets

    𝜎x_ = 𝑥<_ 𝜎<_ + 𝑥__ 𝜎__ + 2𝑥<𝜎<,_𝑥_

    𝜎x_ = 𝑥<_ 𝜎<_ + 𝑥__𝜎__ + 2𝑥< 𝜎<𝜌<,_𝜎_ 𝑥_

    Minimum variance portfolio of two assets

    𝜎__ − 𝜎<,_ 𝜎__ − 𝜎<𝜌<,_𝜎_


    𝑥<∗ = _ =
    𝜎< − 2𝜎<,_ + 𝜎__ 𝜎<_ − 2𝜎< 𝜌<,_𝜎_ + 𝜎__

    Sharpe Ratio

    𝐸 (𝑟F ) − 𝑟z
    𝑆F =
    𝜎F

    CAPM (Capital Asset Pricing Model)

    Security Market Line Beta

    𝜎F,|
    𝐸(𝑟F ) − 𝑟z = 𝛽F C𝐸(𝑟| ) − 𝑟z I 𝛽F = _
    𝜎|

    Beta of a portfolio of l assets

    𝛽D = 𝑥< 𝛽< + 𝑥_ 𝛽_ + ⋯ + 𝑥w 𝛽w

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