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# CFA R5

Question | Answer |
---|---|

Interest Rate (r) | Real Risk Free Interest Rate + Inflation Premium + Default Premium + Liquidity Premium + Maturity Premium |

Nominal Risk-Free Interest Rate | Real risk-free interest rate + Inflation Premium |

Future Value - Single Cash Flow in 1 year (Formula) | FV = PV(1+r) where PV=Present Value FV=Future Value r = rate of interest per period or stated annual iterest rate |

Future Value Compounding (Annual) - Single Cash Flow in N years (Formula) | FV = PV(1+r)^N where PV=Present Value FV=Future Value r = rate of interest per period or stated annual iterest rate (as decimal) N=Number of compounding periods (Annual) |

Future Value Compounding other than Annual - Single Cash Flow in N years (Formula) | FV = PV(1+r/m)^mN where PV=Present Value FV=Future Value r = rate of interest per period or stated annual iterest rate (as decimal) N=Number of compounding periods (Annual) m=Number of compounding periods in one year |

Future Value Continuous Compounding | FV = PV(e)^rN where PV=Present Value FV=Future Value r = rate of interest per period or stated annual iterest rate (as decimal) N=Number of compounding periods (Annual) m=Number of compounding periods in one year e=2.7182818 |

Effective Annual Rate (EAR) - only rates | EAR = (1+r/m)^m - 1 where r = rate of interest per period or stated annual iterest rate (as decimal) m=Number of compounding periods in one year |

Effective Annual Rate (EAR) - rate, PV & FV | EAR = (FV / PV)^1/N - 1 where PV=Present Value FV=Future Value r = rate of interest per period or stated annual iterest rate (as decimal) N=Number of years |

Effective Interest Rate (EIR) - rate, PV & FV - Other than annual compounding frequency (i.e. monthly, quarterly, & semiannually) | r = [(FV / PV)^1/mN - 1] m where PV=Present Value FV=Future Value r = rate of interest per period or stated annual iterest rate (as decimal) N=Number of years m=Number of compounding periods in one year |

Created by:
vgjr