Market, interest rate and price, present value, investment, net present value, internal rate of return, etc.

Present value: money that must be invested or lent now in order to get a certain amount of money at some future time.

Opportunity cost: represents the cost of doing this and not doing that and giving up other opportunities.

Important formula

1. The actual annual interest rate is 1 1+= mmarea.

2. Present value of annuity () () ttrrCrrCrCPV? +? =+? = 1 1 1 1

3. Bond pricing () () () tttttrfrcrcrcp++=1112212210l

4. Stock pricing model of fixed cash dividend growth rate

()grDgrgDp？ =? += 100 1

5. Dividend growth rate

()hrg？ = 1*

6. Price-benefit ratio

()grghEp？ += 100

7. Expected rate of return

()nnniiiRRRRRE▼▼▼++ = =∑= l 22 1 1 1 ~

8. Differences

()()()∑=? =niiiRERR 122~~πσ formula table AcF2 14 financial principles 1

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9. Covariance

()()()()∑=? = nibbiaiaibarerrr 1 ~ ~ ~，~covπ()

10. Correlation coefficient

()()()BABABARRRR~~~，~cov，σσρ=

1 1. Expected return on the portfolio

()2 1 1rwwrrP？ +=

12. Variance of portfolio

()()2222 1 122 122 1 12σσσσσσwwwwP？ +? +=

13. Minimum variance combination 211222121222min2σ σ σ σ σ σ σ? +? =w

14. Optimal combination of two risky assets

()()()()()2 1 122 1222 122 1222 1 1σσσσσσσσσσσffffffrrrrrrrrrw？ ++=

15.CML formula

PMfMfprrrrσσ？ +=

16.SML formula

()fMifirrrr？ +=β

17.βMiiMMiMiσσσσβ= = 2

18. Weighted average cost of capital (WACC)

()()EDcArEDErEDDWACCr++？ +==τ 1)

Formula table AcF2 14 Financial Principles II

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19. Foreign exchange forward exchange rate FCHCrrSF++= 1 1.

20. Parity relationship of European options

0spXecr+=+？ τ

2 1. Black-Scholes option pricing model

()()2 1dNXedSNcrτ？ =

()() 12 dsdnxepr =？ τ

Where () () σσσ2 12/ln++ = rXSd.

τσ? =

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