Quantitative Methods CFA

CFA Level 1

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  • Created by: Alan
  • Created on: 29-03-11 11:13

Time Value of Money (TVM)

Future Value (FV): FV = PV(1 + i/Y) ^N

Present Value (PV): PV = FV(1 + i/Y)^N

Ordinary Annuity: cash flow at END of time period

Annuity Due: cash flow at beginning of time period

Perpetuities: annuities with infinite lives PVperpetuity = (PMT/discount rate)

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Required Rate of Return

Components:

1. Real Risk-Free Rate (RFR)

2. Expected Inflation Premium (IP)

3. Risk Premium

E(R) - (1 + RFR)(1 + IP) + (1 + RP) - 1

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Means

Geometric Mean is used when calculating investment returns over multiple periods or to measure compound growth rates.

Geometric mean return:

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