FV = PV (1 + r)^t, r = interest rate per compounding period; EAR = (FV in 1 year / PV today) - 1 = (1 + r)^t - 1 APV = (PMT) (I/Y) (N)

(CPT) (PV) *APV Goes 1 Period Before 1st Cash); APV = C * PVIFA(r,t) = C * (1 - 1/[1 + r]^t) AFV = (PMT) (I/Y) (N) (CPT) (FV); AFV = C * FVIFA(r,t) = C * ([1 + r]^t - 1) / r; Perpetuities = PVperp = C / r Constant Growth Perpetuity = PV = C / (r - g); Coupon Rate % = Annual Dollar Coupon / Face (Par) Value Current Yield % = Annual Dollar Coupon / Current Price; Yield to Maturity = 2 * r(that makes price = PV of its Future Cash Flows) to Calculate r you enter (PV) (PMT) (FV) (N) (CPT) (I / Y); Pure Discount Bond (Zero Coupon Bonds) Price = Face Value(F) / (1 + r)^t; Level Coupon Bond (Most Common) Price = C * PVIFA(r,t) + 1000 (F?) / (1 + r)^t = C / (1 + r) + C / (1 + r)^2 +...+ C / *1 + r)^t + F / (1 + r)^t; Discount = Coupon Rate is Below Required Return Rate; Consols (Bond Never Stops Paying a Coupon) --> Price = C / r; Dirty Price is price you actually pay for bonds, Clean Price is quoted Price; Now, lets consider a Dirty Price vs a Clean Price (4/1,8/1,2/1) Dirty Price = $60/(1 + .06)4/6 + $1,060/(1 + .06)10/6 Clean Price= $1,019.61 (60/180) x $60 (accrued interest) Zero Growth Case (Value of Stock with a Constant Divident) P(t) = Div(t + 1) / r; Constant Growth Case P(t) = Div(t + 1) / (r - g); Differential (Super-Normal) Growth (Growth Rate Changes at a Point) To solve divide up price at change in growth rate then find price before and after; Earnings Next Year = Earnings This Year + Retained Earnings This Year * Return on Retained Earnings or g = Retention Ratio * Return on Retained Earnings (Where g = Growth in Earnings); Using the Constant Growth Model to Estimate "r" r = Div1 / P0 + g = Dividend Yield + Growth in Earnings (or Dividends); Evaluating Capital Budgeting Projects Five Methods: 1) Net Present Value, 2) Payback Method, 3) Discounted Payback Method, 4.=) Accountingbased Measured, & 5) Internal Rate of Return - Calculates IRR (or r) by entering (PV) (PMT) (N) (CPT) (I/Y) When the cash flow stream has more than one change in sign (-, +, -) there will be more than one IRR solution; Eight items indentify relevant cash flows of a project: 1) Sunk Costs, 2) Opportunity Costs, 3) Side Effects, 4) Working Capital Changes, 5) Terminal Values, 6) Operating Cash Flows, 7) Examples, 8) Inflation and Cash

Flows; Net Working Capital = Current Assets - Current Liabilities; For tax accounting you always assume a salvage value of $0; Terminal Values: 1.) Step 1 Determine Tax Basis, 2.) Determine Gain (Loss) on Sale, 3.) Determine TVCF; 1) Purchase Price 100,000 - Accum Dep 30,000 = Tax Basis 70,000 2) Sale Price 87,000 - Tax Basis 70,000 = Gain 17,000 Tax on Gain (40%) 6,800 3) Sale Price 87,000 - Tax 6,800 = TVCF 80,200 Operating Cash Flows (OCF) = Net Income + Non-Cash Expenses = Net Income + Depreciation Expense Estimating OCF: 1.) Dealing with Cash Items Change Multiply by (1 - Tc), 2.) Dealing with Non-Cash Items Change (i.e. Depreciation Expense) Multiply by Tc (Corporate Tax Rate) Nominal Cash Flows are returns in Dollars, Real Cash Flows are how much can be bought Fisher Effect describes the link between Nominal and Real Returns (R = the nominal return, r = the real return, h = the inflation rate) --> (1 + R) = (1 + r) * (1 + h); Risk and Diversification (Coin Flip) = (Expected Gain / 2) (Expected Risk / 2) = ($500 / 2) - (100 / 2) = 200 Expected Return for an Individual Security = _R = SUM(Pj * Rj) R = Expected Return, Pj = Probability that State j Occurs, Rj = Return on Stock in State j N = # of Possible States of the World Variance of Return for an Individual Security = Sigma^2 = SUM(Pj * [Rj - _R]^2) Standard Deviation of Return for an Individual Security = Sigma = (Sigma^2)^0.5 = Expected Return for a Portfolio = _Rp = SUM(Wi * _Ri) _Rp = Expected Return for a Portfolio, Wi = Proportions of Wealth Invested in Security i, Ri = Expected Return on Stock i, M = Number of Stocks in Portfolio OR _Rp = SUM(Pj * Rpj) --> Rpj = Return on Portfolio in State j