Basic Formulas, APR, & EAR

Basic Formulas, APR, & EAR - t =...

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Treasury bills are pure discount loans – “zero coupon bonds” – principal is paid back at some point in the future without any periodic interest payments Change in PV divided by change in “t” is always negative Calculating the PV of a future cash flow is called discounted cash flow (DCF) valuation 72/r = time to double your investment Annuity – finite series of equal payments that occur at regular intervals “Ordinary annuities” occur at the end of the period “Annuity dues” occur at the beginning of the period
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Unformatted text preview: t = ln(C/(C-r*PV))/ln(1+r)`3 Growing Basic Formulas PV = C((1-((1+g)/(1+ r)))/(r-g)) FV = C((1+r)^t – (1+g)^t)/(r-g)) Present Value of Perpetuity PV = C/r Annual Percentage Rate (APR) APR = r*m = periodic rate multiplied by the # of periods per year To get the periodic rate we rearrange to r = APR/m Effective Annual Rate (EAR) Actual rate paid or received after accounting for compounding that occurs during the year 1% permonth APR – 12% EAR – 12.68% FV = PVe rt...
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This note was uploaded on 05/26/2011 for the course FINA 3000 taught by Professor Laplante during the Spring '08 term at UGA.

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