Flashcards in Assumed Knowledge Deck (6)

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1

## What is the formula for compounding?

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Formula for compounding:

F = P. (1 + r) n

Where:

F = Future value

P = Initial investment (present value)

r = Interest rate (expressed as a decimal)

n = Number of time periods

2

## What is the formula for discounting?

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The rearrangement of the original formula for compounding to make P (Present value) the subject of the equation.

P = F / (1+r)n

3

## What is also the formula for present value?

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➢ Present value (PV) = Future value (FV) x Discount factor (DF)

Where:

➢ Discount factor = 1 / (1+ r)n

AKA the discounting formula

PV=Discounting formula

4

## What is the discounting factor formula

### Discount factor = 1 / (1+ r)n

5

## What is the formula for perpetuity?

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Present value of the perpetuity=

PV= CF/r

r= Discount rate

6