Formulae Sheets

Simple Interest
1. Calculation of simple interest I = Pit

2. Accumulation of principal, assuming simple interest S = P (1 + it)

3. Present value, assuming simple interest

S
P = S(1 + it ) −1 or P =
(1 + it )
FV
4. Price of a discount security (e.g. bank bill) P=
 ni 
1 + 
 365
36500 × FV
Alternative formula =
36500 + days × % IR

FV − P 36500
5. Discount rate (%) = ×
FV n
FV − P 36500
6. Yield (%) = ×
P n

Compound Interest
7. Geometric mean return (GM) = [(1+R1)*(1+R2)*(1+R3)...(1+Rn)]1/n -1

8. Accumulation of principal over n periods: FV = PV (1 + i)n

FV
9. Present value PV = FV (1 + i )− n or PV =
(1 + i )n

Simple Annuities and Bonds

10. Present value of an ORDINARY annuity and Present value (annuity DUE)

PV =
[
C (1 + i )n − 1 ] PV =
[
C (1 + i )n − 1 ] ×(1 + i)
i (1 + i )n
i (1 + i )n

11. Future value of an ORDINARY annuity and Future value (annuity DUE)

FV =
[
C (1 + i )n − 1 ] FV =
[
C (1 + i )n − 1 ]
×(1 + i )
i i

12. Price of a coupon bond = PV (bond FV) + PV (coupons)

PB =
[
C (1 + i )n − 1 ]+ FV
i (1 + i )n (1 + i )n

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Equity markets
13. Value of Rights R = n*(P-S)/(n+1)
where P = Share price, S= Subscription price, n = No, of shares required to be eligible for rights

Dividend valuation model (with constant dividends in perpetuity)

Div
14. Share price =
ri

15. Capital Asset Pricing Model E( R ) = rf + β ( rm − rf )

Bank capital adequacy ratio

16. CAR
Total capital (Tier 1 + Tier 2)
=
r w assets for credit risk + r w asset equivalent for market risk + r w asset equivalent for operational risk

Expected rate of return and standard deviation

∧ n
17. Expected rate of return = K = ∑ Pi K i
i =1

n ∧
18. Standard deviation = ∑ (k i − k ) 2 Pi
i =1

Foreign exchange market

 1 + rt terms 
f com / terms = s com / terms  
19.  1 + rt com 

𝑓𝑓𝑛𝑛 −𝑆𝑆 𝐷𝐷𝐷𝐷𝐷𝐷 𝑖𝑖𝑖𝑖 𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦

20. 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 = × × 100
𝑆𝑆 𝑛𝑛

21. (1 + i ) = (f/s) (1 + i )
commodity terms

Symbols Used
I = total amount of simple interest
P or A = the principal, or present value of S or the discounted value of S
i = the rate of interest per period (normally per annum) expressed as a decimal
S = the amount, or the accumulated value of P, or the maturity value of P.
FV = face value of a discount security
n = number of days to maturity of a discount security or number of time periods for a
compound interest calculation
t = number of time periods for a simple interest calculation

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βi = Covariance of ri and rm
Variance of ri

ri = return on security i
rf = the risk free interest rate
rm = the return on the market portfolio
Ct = cash flow at time period t
R = periodical payment in an annuity
f = forward rate
s = spot rate
t = forward period (day/ day in year)

Please note that the formulae listed on this page are to assist students in their exam. Students are free to
use other approaches.
The presence of a formulae on these pages does not necessarily mean that they will be required in
answering any of the actual questions asked in the final examination.

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