Flashcards in Assumed Knowledge Deck (6)
What is the formula for compounding?
Formula for compounding:
F = P. (1 + r) n
F = Future value
P = Initial investment (present value)
r = Interest rate (expressed as a decimal)
n = Number of time periods
What is the formula for discounting?
The rearrangement of the original formula for compounding to make P (Present value) the subject of the equation.
P = F / (1+r)n
What is also the formula for present value?
➢ Present value (PV) = Future value (FV) x Discount factor (DF)
➢ Discount factor = 1 / (1+ r)n
AKA the discounting formula
What is the discounting factor formula
Discount factor = 1 / (1+ r)n
What is the formula for perpetuity?
Present value of the perpetuity=
r= Discount rate