Finance Notes > Corporate Finance Notes

This is an extract of our **1. Time Value Of Money** document, which
we sell as part of our **Corporate Finance Notes** collection written by the top tier of
University Of London (examined By LSE) students.

* The following is a more accessble plain text extract of the PDF sample above, taken from our Corporate Finance Notes.
Due to the challenges of extracting text from PDFs, it will have odd formatting:
*

Time Value of Money

Present-value Calculations and Valuation of Physical Investment Projects

Time Value of Money

Abbreviations

P = Principle

R = Interest Rate

PV = Present Value

FV = Future Value

T = Number of Periods

N = Number of Payments in Each Period e = exponential

Compound Interest: FV = P x (1 + R / N) T x N

Continuous Compound Interest: FV = P x e R x T

Simple Interest: FV = P x R x N

Discounting: PV = FV / (1 + R)T

Continuous Discounting: PV = FV x e - R x T

Cash Flow Patterns

Abbreviations

PV = Present Value

YTM = Yield to Maturity

FaV = Face Value = Bond Principle

Zero-coupon Bond: PV = FaV / (1 + YTM)T

Abbreviation

C = Annual Coupon Payment

Coupon Bond: PV = C / (1 + YTM)1 + C / (1 + YTM)2 + … + (C + P) / (1 + YTM)T

1 Abbreviations

D = Dividend

G = Growth Rate

P = Stock Price

C = Coupon Payment

R = Interest Rate

Perpetuity: PV = C / YTM

Perpetuity with Growth

Gordon Growth Model

PV = C1 / (R - G)

P0 = (P1 + D1) / (1 + R)

FV1 = C2 / (R - G)

or

FV2 = C3 / (R - G)

P0 = D1 / (1 + R) + D2 / (1+ R)2 + …

FVN = CN+1 / (R - G)

or

P0 = D1 / (R - G)

Present Value of Annuity (Mortgage)

Abbreviations

AB = Amount Borrowed at the Beginning

MR = Monthly Repayment

AB = MR x {

1 - [1 / (1 + R)T]

R

}

Future Value of Annuity (Sinking Fund)

Abbreviations

AR = Amount Received in the End

MP = Monthly Payment

AR = MP x [

(1 + R)T - 1

R

]

2

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