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1

What is the formula for compounding?

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?

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?

➢ 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?

Present value of the perpetuity=

PV= CF/r

r= Discount rate

6

What does a discount rate do?

It simply takes us back one period