1

)
r
+ (1
C
= PV
t
t
t
n
1 = t

r
C
= PV

g - r
C
= PV

) r + (1
1
= r%) , DF(t years
t

) r + (1 = r%) , FV(t years
t


|
|
.
|

\
|
) r + (1
1
- 1
r
1
= %) r , AF(t years
t


|
|
.
|

\
|
) r + (1
) g + (1
- 1
g - r
C
= PV
t
t


|
|
.
|

\
|
q
r
+ 1 PV =
C
qt
t


C e
= PV
t
t r -
c

1 -
e
= r r); + (1 log =
r
r
e
c
c

COURSERA

AN INTRODUCTION TO CORPORATE FINANCE
Franklin Allen

FORMULA SHEET FOR EXAM

Present value formulas:
Basic formula:


Perpetuity:


Growing perpetuity:


Discount factor:


Future value factor:



Annuity factor:



Growing annuity:



Interest r per year
compounded q times
a year for t years:

Continuously compounded:


Continuous/annual
relationship

Reinvestment rate: (1 + r
1,2
) = (1 + r
2
)
2




2
(1 + r
1
)



3

) r + (1
DIV
=
P
t
t
1 = t
0

g - r
DIV
=
P
1
0


x
p = EX
i i
n
1 = i

) f(x p = ] f(X) [ E
i i
n
1 = i

aE(X) = E(aX)
E(Y) + E(X) = Y) + E(X
Basic stock valuation formula:



Constant growth case:



Internal Rate of Return:

C
0
+ 1 C
1
+ 1 C
2
+ . . . + 1 C
t
= 0
1 + IRR (1 + IRR)
2
(1 + IRR)
t


Profitability Index: PI = NPV of project
Initial Investment

Payback: Payback = Period initial investment is recovered within


Inflation:

Real discount rate = 1 + nominal rate - 1
1 + inflation rate

Nominal cash flow = Real cash flow (1 + inflation rate)
t


Real cash flow = Nominal cash flow / (1 + inflation rate)
t


Statistics formulas:
Expectation:







If a is constant:







4
| |
2
i i
n
1 = i
2
2
X
) EX X ( p = ) EX - (X E = X Var o
=



Variance:



5

2
X X X
SD o = o =
| |

=

o
=
n
1 i
i i i XY
) EY y )( EX x ( p = EY) - EX)(Y - (X E = ) Y , X ( Cov


M Var
) M , i Stock ( Cov
=
2
M
iM
i
=
o
o
|


B A
2
2
port
SD SD ) B , A ( )Corr - (1 2 + B Var ) - (1 + A Var = Var t t t
t


N N 2 2 1 1 port
EX + . . . + EX + EX =
Mean t t t

) X , X ( Cov + X Var = Var
j i j i
N
1 = j
N
1 = i
i
2
i
N
1 = i
port
j i
t t t

=


M port port
SD = SD |
|
t
|
t
|
t
|
N
N
2
2
1
1
port
+ . . . + + =
Standard deviation:


Covariance:



Correlation coefficient:
Y X Y X
XY
XY
SD SD
) Y , X ( Cov
= ) Y , X ( Corr =
o o
o
=

Beta:


Portfolio formulas:

Mean and Variance of a portfolio with t in A and 1 - t in B (i.e. two assets)

Mean:
)EB - (1 + EA =
Meanport
t t
Variance:


Mean and Variance of a portfolio with t
i
in X
i
, (i.e. N assets)

Mean:

Variance:


For a well-diversified portfolio:


Beta:


For portfolios on the Capital Market Line: |
port
= t; SD
port
= tSD
M


CAPM: )
r
-
r
( +
r
= r
F M F