Lesson 1 Simple and Compound Interests

1. SIMPLE INTEREST 2. COMPOUND INTEREST

Formula 1.1.1 Formula 1.2.1
𝑰 = 𝑷𝒓𝒕 𝒓 𝒏𝒕
Where P = principal amount; r = rate of interest; 𝑨 = 𝑷 (𝟏 + )
𝒏
and t = time in years Where
A = total amount
Formula 1.1.2 P = Principal amount
𝑨=𝑷+𝑰 r = rate of interest
Where A = total amount; P = principal amount; I t = time in years
= interest n = number of compounding period/s in a year

Formula 1.1.3 Ordinary Interest

𝒏
𝑰 = 𝑷𝒓 ∙
𝟑𝟔𝟎
Where P = principal amount; r = rate of interest;
and n = time in days

Formula 1.1.4 Exact Interest

𝒏
𝑰 = 𝑷𝒓 ∙
𝟑𝟔𝟓
Where P = principal amount; r = rate of interest;
and n = time in days

Lesson 2. Simple Annuities

1. Simple Ordinary Annuity 2. Simple Annuity Due

Formula 2.1.1 Formula 2.2.1

𝒓 𝒏𝒕 𝒓 𝒏𝒕
(𝟏 + ) − 𝟏 (𝟏 + ) − 𝟏 𝒓
𝑭𝑽 = 𝑷 ∙ [ 𝒏 ] 𝑭𝑽 = 𝑷 ∙ [ 𝒏 ] ∙ (𝟏 + )
𝒓 𝒓 𝒏
𝒏 𝒏
Where Where
FV = Future Value FV = Future Value
P = Periodic Payment P = Periodic Payment
r = annual rate of interest r = annual rate of interest
n = number of conversion period/s in a year n = number of conversion period/s in a year
t = number of years t = number of years

Formula 2.1.2 Formula 2.2.2

𝒓 𝒓
𝑭𝑽 × 𝒏 𝑭𝑽 × 𝒏
𝑷= 𝑷=
𝒓 𝒏𝒕 𝒓 𝒏𝒕 𝒓
(𝟏 + 𝒏) − 𝟏 [(𝟏 + 𝒏) − 𝟏] ∙ (𝟏 + 𝒏)
Where Where
FV = Future Value FV = Future Value
P = Periodic Payment P = Periodic Payment
r = annual rate of interest r = annual rate of interest
n = number of conversion period/s in a year n = number of conversion period/s in a year
t = number of years t = number of years
Formula 2.1.3 Formula 2.2.3
𝒓 −𝒏𝒕 𝒓 −𝒏𝒕
𝟏 − (𝟏 + 𝒏) 𝟏 − (𝟏 + 𝒏) 𝒓
𝑷𝑽 = 𝑷 ∙ [ 𝒓 ] 𝑷𝑽 = 𝑷 ∙ [ 𝒓 ] ∙ (𝟏 + )
𝒏
𝒏 𝒏
Where Where
PV = Present Value PV = Present Value
P = Periodic Payment P = Periodic Payment
r = annual rate of interest r = annual rate of interest
n = number of conversion period/s in a year n = number of conversion period/s in a year
t = number of years t = number of years

Formula 2.1.4 Formula 2.2.4

𝒓 𝒓
𝑷𝑽 × 𝒏 𝑷𝑽 × 𝒏
𝑷= 𝑷=
𝒓 −𝒏𝒕 𝒓 −𝒏𝒕 𝒓
𝟏 − (𝟏 + 𝒏) [𝟏 − (𝟏 + 𝒏) ] ∙ (𝟏 + 𝒏)
Where Where
PV = Present Value PV = Present Value
P = Periodic Payment P = Periodic Payment
r = annual rate of interest r = annual rate of interest
n = number of conversion period/s in a year n = number of conversion period/s in a year
t = number of years t = number of years

Lesson 3. Amortization and Deferred Annuity

1. Amortization
Number of Periodic Interest (I) Amount Repaid Outstanding
periods Payment (P) 𝒓 𝑨 =𝑷−𝑰 Balance
𝑰=𝑷∙( )
𝒏×𝒕 *Simple Ordinary Annuity
𝒓 𝒏 Where A = amount 𝑶𝑩 = 𝑷𝑽 − 𝑨
𝑷𝑽 × Where P = Previous repaid; P = periodic Where OB =
𝑷= 𝒏
𝒓 −𝒏𝒕 balance; r = rate of payment; I = interest outstanding balance;
𝟏 − (𝟏 + ) interest; and n = PV = Present value; A
𝒏
number of = amount repaid
compounding periods
in a year

2. Deferred Annuity

Formula 3.2.1 Formula 3.2.2

𝒓 𝒏𝒕 𝒓 −(𝒏𝒕+𝒅) 𝒓 −𝒅
(𝟏 + 𝒏) − 𝟏 𝟏 − (𝟏 + 𝒏) 𝟏 − (𝟏 + 𝒏)
𝑭𝑽 = 𝑷 ∙ [ 𝒓 ] 𝑷𝑽 = 𝑷 × [ 𝒓 − 𝒓 ]
𝒏 𝒏 𝒏
Where
FV = Future Value Where
P = Periodic Payment PV = Present Value
r = annual rate of interest P = Periodic Payment
n = number of conversion period/s in a year r = annual rate of interest
t = number of years n = number of conversion period/s in a year
t = number of years
d = number of deferred periods
Lesson 4. General Annuities

1. General Ordinary Annuity 2. General Annuity Due

Formula 4.1.1 Formula 4.2.1
𝒓 𝒏𝒕 𝒓 𝒏𝒕 𝒓
(𝟏 + 𝒏) −𝟏 (𝟏 + 𝒏) − 𝟏 𝒓
𝑭𝑽 = 𝑷 × 𝑭𝑽 = 𝑷 [ ] 𝒏 +
𝒑 𝒓 𝒑
𝒏
𝒓 𝒄 𝒏 𝒓 𝒄
[ (𝟏 + 𝒏) − 𝟏 ] [ (𝟏 + 𝒏) − 𝟏 ]
Where Where
FV = Future Value FV = Future Value
P = Periodic Payment P = Periodic Payment
r = rate of interest r = rate of interest
t = time in years t = time in years
n = number of compounding periods per year n = number of compounding periods per year
p = number of months in a payment interval p = number of months in a payment interval
c = number of months in a compounding period c = number of months in a compounding period

Formula 4.1.2 Formula 4.2.2

𝑟 −𝑛𝑡 𝒓 −𝒏𝒕 𝒓
1 − (1 + 𝑛) 𝟏 − (𝟏 + 𝒏) 𝒓
𝑷𝑽 = 𝑷 × 𝑷𝑽 = 𝑷 [ ] 𝒏 +
𝑝 𝒓 𝒑
𝒏
𝑟 𝑐 𝒓 𝒄
[ (1 + 𝑛) − 1 ] 𝒏 [ (𝟏 + 𝒏) − 𝟏 ]
Where
PV = Present Value Where
P = Periodic Payment PV = Present Value
r = rate of interest P = Periodic Payment
t = time in years r = rate of interest
n = number of compounding periods per year t = time in years
p = number of months in a payment interval n = number of compounding periods per year
c = number of months in a compounding period p = number of months in a payment interval
c = number of months in a compounding period

Lesson 5. Stocks, Bonds, and Consumer Loans

1. Stocks 2. General Annuity Due
Formula 5.1.1 Formula 5.2.1
𝑨𝒏𝒏𝒖𝒂𝒍 𝒄𝒐𝒖𝒑𝒐𝒏 𝒂𝒎𝒐𝒖𝒏𝒕 = 𝒇𝒂𝒄𝒆 𝒗𝒂𝒍𝒖𝒆 × 𝒄𝒐𝒖𝒑𝒐𝒏 𝒓𝒂𝒕𝒆
𝒕𝒐𝒕𝒂𝒍 𝒄𝒐𝒎𝒑𝒂𝒏𝒚 𝒑𝒓𝒐𝒇𝒊𝒕
𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆 =
𝒕𝒐𝒕𝒂𝒍 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝑺𝒆𝒎𝒊 − 𝒂𝒏𝒏𝒖𝒂𝒍 𝒄𝒐𝒖𝒑𝒐𝒏 𝒂𝒎𝒐𝒖𝒏𝒕
= 𝒂𝒏𝒏𝒖𝒂𝒍 𝒄𝒐𝒖𝒑𝒐𝒏 𝒂𝒎𝒐𝒖𝒏𝒕 ÷ 𝟐
𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆
= 𝒑𝒆𝒓𝒄𝒆𝒏𝒕𝒂𝒈𝒆 𝒚𝒊𝒆𝒍𝒅 × 𝒑𝒂𝒓 𝒗𝒂𝒍𝒖𝒆 𝒀𝒊𝒆𝒍𝒅 = 𝒂𝒏𝒏𝒖𝒂𝒍 𝒄𝒐𝒖𝒑𝒐𝒏 𝒂𝒎𝒐𝒖𝒏𝒕 × 𝒏𝒐. 𝒐𝒇 𝒄𝒐𝒖𝒑𝒐𝒏𝒔
× 𝒕𝒆𝒓𝒎 𝒐𝒇 𝒕𝒉𝒆 𝒃𝒐𝒏𝒅
𝑺𝒕𝒐𝒄𝒌𝒉𝒐𝒍𝒅𝒆𝒓 𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 3. Loans
= 𝒅𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆
Formula 5.3.1
× 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒐𝒘𝒏𝒆𝒅
𝒓 −(𝒃−𝒌)
𝟏 − (𝟏 + 𝒏)
𝒕𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 𝒐𝒇 𝒔𝒕𝒐𝒄𝒌 𝑶 = 𝑹[ ]
= (𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝒓
× 𝒑𝒓𝒊𝒄𝒆 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆) + 𝒄𝒐𝒎𝒎𝒊𝒔𝒔𝒊𝒐𝒏 𝒏
Where
𝒕𝒐𝒕𝒂𝒍 𝒔𝒆𝒍𝒍𝒊𝒏𝒈 𝒑𝒓𝒊𝒄𝒆
= 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔
O = Outstanding Balance
× 𝒔𝒆𝒍𝒍𝒊𝒏𝒈 𝒑𝒓𝒊𝒄𝒆 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆 R = Regular Payment
r = rate of interest
𝒈𝒂𝒊𝒏 n = number of compounding periods per year
= 𝒕𝒐𝒕𝒂𝒍 𝒔𝒆𝒍𝒍𝒊𝒏𝒈 𝒑𝒓𝒊𝒄𝒆 − 𝒕𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 𝒐𝒇 𝒔𝒕𝒐𝒄𝒌
𝒍𝒐𝒔𝒔 b = total number of paying periods
k = number of payments made