Formula-sheet - CFA Level 1 2007 - Formula Sheet T CFt...

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CFA Level 1 2007 - Formula Sheet ©ANALYSTNOTES.COM 1 THE TIME VALUE OF MONEY Interest rate = Risk free rate + Inflation risk premium + Default risk premium FV t = Future Value (period t ) = $X x (1+ r ) t PV 0 = Present Value (time 0) = FV t / (1+r) t Stated Annual Rate = p p SAR r n = * ; , r Periodic rate and p n Number of periods in a year p = = Effective Annual Rate = (1 ) 1 n p EAR r p = + - [(1 ) 1] Future Value of an Annuity T PMT x r r = = + - = FVA T 0 1 [1 ] (1 ) Present Value of an Annuity PMT x T r r = - + = PVA [(1 ) 1] (1 ) Future Value of Annuity Due T T r PMT x r r = + - = = + FVAD 1 [1 ] (1 ) (1 ) Present Value of Annuity Due T T r PMT x r r = - + = = + PVAD Present Value of Perpetuity = PMT r Future Value of Uneven Cash Flows = (1 ) 0 T T t C r t T t - = + = FV Present Value of Uneven Cash Flows = 0 1 (1 ) T C t t t r = = + PV DISCOUNTED CASH FLOW APPLICATIONS Net Present Value = 0 (1 ) T CF t NPV t t r = = + For IRR , solve: 0 0 (1 ) T CF t NPV t t IRR = = = + If IRR k, Accept ; If IRR < k, Reject . where k = Cost of Capital Dollar Weighted Return is an IRR calculation. Holding Period Return = HPR = V V CF END END BEG V BEG - + TWR =[(1+HPR 1 )(1+HPR 2 )..(1+HPR n )] 1/n -1 Then annualize the time-weighted return. Bank Discount Yield = BDY = FaceValue-Market Price 360 100 FaceValue x x T ± ² ³ ´ µ · ¸ ¹ º » ¼ Money Market Yield = CD Equivalent Yield = (360 x BDY) / (360 – t x BDY) Bond Equivalent Yield = BEY = HPY x 360 T STATISTICAL CONCEPTS AND MARKET RETURNS Gross Return = 1 1 0 P CF R P + = Average gross return =(R 1 x R 2 x . .. x R T ) 1/T Arithmetic Mean = N 1 Y = Y i i=1 n Weighted Mean = 1 N W i i i Y W Y = = , where W i are weights that sum to 1. Geometric Mean = 1 1 2 3 ( ) N G N Y Y xY xY x xY = ggg Harmonic Mean = Inverse of arithmetic average of inverse of observations. z
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Formula-sheet - CFA Level 1 2007 - Formula Sheet T CFt...

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