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\author{MJ McGiver}
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  /Title (115-114-finance-fundamentals-chpt4-6.pdf)
  /Creator (Cheatography)
  /Author (MJ McGiver)
  /Subject (115.114 Finance Fundamentals. Chpt4\&6 Cheat Sheet)
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\begin{tabulary}{11cm}{L}
    \vspace{-2pt}\large{\bf{\textcolor{DarkBackground}{\textrm{115.114 Finance Fundamentals. Chpt4\&6 Cheat Sheet}}}} \\
    \normalsize{by \textcolor{DarkBackground}{MJ McGiver} via \textcolor{DarkBackground}{\uline{cheatography.com/213568/cs/46481/}}}
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  \mymulticolumn{2}{p{5.377cm}}{\bf\textcolor{white}{Cheatographer}}  \\
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  \mymulticolumn{1}{p{5.377cm}}{\bf\textcolor{white}{Cheat Sheet}}  \\
   \vspace{-2pt}Published 2nd June, 2025.\\
   Updated 2nd June, 2025.\\
   Page {\thepage} of \pageref{LastPage}.
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  Measure your website readability!\\
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\begin{multicols*}{2}

\begin{tabularx}{8.4cm}{x{2.96 cm} x{5.04 cm} }
\SetRowColor{DarkBackground}
\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{Chpt4. TVM-Single Payments}}  \tn
% Row 0
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{\bf{Time Value of money}} & {\emph{Individuals prefer to receive a dollar today to receiving that same dollar promised in a year's time.}} \tn 
% Row Count 5 (+ 5)
% Row 1
\SetRowColor{white}
\mymulticolumn{2}{x{8.4cm}}{} \tn 
% Row Count 5 (+ 0)
% Row 2
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{\bf{Interest}} & {\emph{The cost of funds to a borrower or part of the return for a lender or investor}} \tn 
% Row Count 9 (+ 4)
% Row 3
\SetRowColor{white}
{\bf{Mortgage}} & {\emph{recover money by selling property}} \tn 
% Row Count 11 (+ 2)
% Row 4
\SetRowColor{LightBackground}
{\bf{Term Loan}} & {\emph{bank loan with maturity\textasciicircum{}due date\textasciicircum{}}} \tn 
% Row Count 13 (+ 2)
\hhline{>{\arrayrulecolor{DarkBackground}}--}
\end{tabularx}
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\begin{tabularx}{8.4cm}{x{2.56 cm} x{5.44 cm} }
\SetRowColor{DarkBackground}
\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{4.1 Simple Interest \& Future Value}}  \tn
% Row 0
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{\bf{Future Value}} & {\emph{amount received later}}; cash value of investment at future date: `FV=P(1+rn)` \tn 
% Row Count 3 (+ 3)
% Row 1
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{\bf{Simple Interest}} & {\emph{Interest calculated on the original amount}}: `I=(P)(r)(n)` \tn 
% Row Count 6 (+ 3)
% Row 2
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{\bf{Money Markets}} & {\emph{short-term debt markets}}: companies can borrow/ invest in the short-term. \tn 
% Row Count 9 (+ 3)
% Row 3
\SetRowColor{white}
{\bf{Formula}} & `FV = P(1 + rn)` \tn 
% Row Count 10 (+ 1)
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\begin{tabularx}{8.4cm}{x{2.4 cm} x{5.6 cm} }
\SetRowColor{DarkBackground}
\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{4.2 Simple Interest \& Present Value}}  \tn
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{\bf{Present Value}} & {\emph{amount today}}: needed cash today, to yield a particular value at future. \tn 
% Row Count 3 (+ 3)
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{\bf{Discounts}} & {\emph{to find the present value of future amount}}: inverse for compounding interest. \tn 
% Row Count 6 (+ 3)
% Row 2
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{\bf{Formula}} & `PV = FV/(1+rn)` \tn 
% Row Count 7 (+ 1)
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\mymulticolumn{2}{x{8.4cm}}{Working out/ Calculating how much the money we expect to receive in the future is worth today.}  \tn 
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\end{tabularx}
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\begin{tabularx}{8.4cm}{x{2.96 cm} x{5.04 cm} }
\SetRowColor{DarkBackground}
\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{4.3 Compound Interest \& FV}}  \tn
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{\bf{Compounded Interest}} & {\emph{Interest is stacking}}: It is then added to the principal \tn 
% Row Count 3 (+ 3)
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{\bf{Compounding}} & {\emph{Process of finding future amounts where interest is paid on interest already earned.}} \tn 
% Row Count 7 (+ 4)
% Row 2
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{\bf{Opportunity Cost}} & {\emph{best market yield achieve through alternative course of action}}: Market Yield is often benchmarked for opportunity costs \tn 
% Row Count 12 (+ 5)
% Row 3
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{\bf{Formula}} & `FV = PV(1+r)\textasciicircum{}n\textasciicircum{}` \tn 
% Row Count 13 (+ 1)
\hhline{>{\arrayrulecolor{DarkBackground}}--}
\SetRowColor{LightBackground}
\mymulticolumn{2}{x{8.4cm}}{Working out/ calculating future value through interest for each period (plus any interest), then added to the principal.}  \tn 
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\begin{tabularx}{8.4cm}{x{2.16 cm} x{5.84 cm} }
\SetRowColor{DarkBackground}
\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{4.4 PV of a single payment}}  \tn
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{\bf{Discounting}} & {\emph{The process of finding current amounts by the process of present value.}} \tn 
% Row Count 3 (+ 3)
% Row 1
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{\bf{Formula}} & `PV = FV / (1+r)\textasciicircum{}n\textasciicircum{}` \tn 
% Row Count 5 (+ 2)
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{\bf{Formula2}} & `PV = FV x (1+r)\textasciicircum{}-n\textasciicircum{}` \tn 
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\begin{tabularx}{8.4cm}{x{2.72 cm} x{5.28 cm} }
\SetRowColor{DarkBackground}
\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{4.5 Compounding frequency}}  \tn
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{\bf{Coupon}} & {\emph{Interest paid, based on a percentage of a bond's face value.}} \tn 
% Row Count 3 (+ 3)
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{\bf{Zero- coupon Bond}} & {\emph{single-payment}}: no interest payment during its lifetime since interest is included with the repayment of principal at maturity. \tn 
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{\bf{Maturity}} & {\emph{Deadline}}:The date when security will be payed. \tn 
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{\bf{Formula}} & `FV = PV x (1 + r/m)\textasciicircum{}m x n\textasciicircum{}` \tn 
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% Row 4
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{\bf{Formula2}} & `PV = FV / (1 + r/m)\textasciicircum{}m x n\textasciicircum{}` \tn 
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\mymulticolumn{2}{x{8.4cm}}{When compounding period per year is increased by {\emph{semi-annually, quarterly, monthly or daily.}} \newline  \newline PV formula can be used to calculate the current value of a zero-coupon bond.}  \tn 
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\begin{tabularx}{8.4cm}{x{2.48 cm} x{5.52 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{4.6 Continuous compounding/ discounting}}  \tn
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{\bf{Formula}} & `FV = PV (PV x e\textasciicircum{}r x n\textasciicircum{})` \tn 
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% Row 1
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{\bf{or}} & `FV = PVe\textasciicircum{}rn\textasciicircum{}` \tn 
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\mymulticolumn{2}{x{8.4cm}}{When compounding frequency is increased to a very large number of (infinity). \newline  \newline Where e is constant, e = 2.718}  \tn 
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\begin{tabularx}{8.4cm}{x{3.52 cm} x{4.48 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{4.7 Nominal \& Effective Interest Rates}}  \tn
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{\bf{Nominal Rate}} & {\emph{contractual rate, ignores compounding. includes inflation}}: quoted rate \tn 
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% Row 1
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{\bf{Effective Rate}} & {\emph{actual rate, accounts compounding. includes adjustments}}: adjustments to nominal rate for the frequency of compounding. \tn 
% Row Count 10 (+ 6)
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{\bf{Annual Percentage Rate (APR)}} & {\emph{contractual rate, ignores compounding. when short-term rates are annualized }} \tn 
% Row Count 14 (+ 4)
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{\bf{Rate of Return}} & {\emph{rate of profit/ loss from investment}} \tn 
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% Row 4
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{\bf{Formula}} & `r\textasciitilde{}e\textasciitilde{} = (1 + r/m)\textasciicircum{}m\textasciicircum{} - 1` \tn 
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\begin{tabularx}{8.4cm}{x{2.64 cm} x{5.36 cm} }
\SetRowColor{DarkBackground}
\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{4.8 Unknown Interest Rate}}  \tn
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{\bf{Formula}} & `r = (FV/PV)\textasciicircum{}1/n\textasciicircum{} - 1` \tn 
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\mymulticolumn{2}{x{8.4cm}}{FV and PV is given, but find interest rate.}  \tn 
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\begin{tabularx}{8.4cm}{x{2.64 cm} x{5.36 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{Chpt. 6 Risk and Return}}  \tn
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{\bf{Risk-free assets}} & {\emph{assets that do not have risk}}: e.g. Treasury Bills and Government Bonds. \tn 
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\begin{tabularx}{8.4cm}{x{3.12 cm} x{4.88 cm} }
\SetRowColor{DarkBackground}
\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.1 Two components of a return.}}  \tn
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{\bf{Nominal Interest Rates}} & {\bf{Borrower's POV}}: costs they incur in order to use the funds of investors. \tn 
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{\bf{Nominal Returns}} & {\bf{Investors (Lender)'s POV}}: Compensates the investor for deferring consumption. \tn 
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\mymulticolumn{2}{x{8.4cm}}{These terms are made up of two components,} \tn 
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{\bf{Real Interest Rate}} & {\emph{Rate with no inflation or uncertainty}} \tn 
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{\bf{Inflation}} & {\emph{Increase level of prices from supply and demand.}} \tn 
% Row Count 14 (+ 3)
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\begin{tabularx}{8.4cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{8.4cm}}{\bf\textcolor{white}{The real interest rate}}  \tn
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\mymulticolumn{1}{x{8.4cm}}{The interest rate adjusted for inflation, showing the true cost of borrowing or the real yield of an investment. \newline % Row Count 3 (+ 3)
{\emph{Real Interest Rate = Nominal IR + Expected Inflation}}% Row Count 5 (+ 2)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
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\begin{tabularx}{8.4cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{8.4cm}}{\bf\textcolor{white}{Expected Inflation}}  \tn
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\mymulticolumn{1}{x{8.4cm}}{Inflation may be due to government policies, oil price rises, world events, etc.  \newline % Row Count 2 (+ 2)
Investors require compensation for expected future inflation over the period of the loan or investment, and that historical rates of inflation are irrelevant. \newline % Row Count 6 (+ 4)
{\bf{Consumer Price Index (CPI)}} measures changes in the general level of prices each quarter.% Row Count 8 (+ 2)
} \tn 
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\begin{tabularx}{8.4cm}{x{3.68 cm} x{4.32 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.2 Nominal Interest Rate}}  \tn
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\mymulticolumn{2}{x{8.4cm}}{{\bf{Fisher Equation}} by Irving Fisher} \tn 
% Row Count 1 (+ 1)
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{\bf{Formula: Nominal Interest Rate}} & `NiR = {[}(1 + Real interest rate) x (1 + \% Expected inflation){]} - 1` \tn 
% Row Count 5 (+ 4)
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{\bf{Formula: Real interest rate}} & `RiR = (1 + NiR / 1 + \% Expected Inflation) - 1` \tn 
% Row Count 8 (+ 3)
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{\bf{Risk Premium}} & {\emph{Additional return investors require for investing in risky assets}} \tn 
% Row Count 12 (+ 4)
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\begin{tabularx}{8.4cm}{x{2.96 cm} x{5.04 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.3 Shaped of Yield Curves}}  \tn
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{\bf{Yield Curves}} & {\emph{Depicted in graphical form}} which presents the relationship between time to maturity and percentage yield, know as {\bf{Term structure of interest rates}}. \tn 
% Row Count 7 (+ 7)
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{\bf{Normal yield curve}} & {\emph{upward-sloping curve}}: short-term yields are low, will rise with longer maturities. \tn 
% Row Count 11 (+ 4)
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{\bf{Inverse yield curve}} & {\emph{downward-sloping}}: short-term yields are high, yields on long-term maturities fall over time. \tn 
% Row Count 15 (+ 4)
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{\bf{Flat yield curve}} & {\emph{straight line}}: little change in interest rates across time periods. \tn 
% Row Count 18 (+ 3)
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{\bf{Humped yield curve}} & Short-term securities are higher, longer-term bonds are lower. \tn 
% Row Count 21 (+ 3)
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\begin{tabularx}{8.4cm}{x{3.2 cm} x{4.8 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.4 Risky Assets}}  \tn
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{\bf{Risk}} & {\emph{The possibility of loss:}} the uncertainty of receiving the expected returns because a borrower may not be able to repay the principal on fixed-interest securities when required. \tn 
% Row Count 8 (+ 8)
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{\bf{Formula: Nominal Return}} & Nominal Return = Risk-free return + Risk Premium \tn 
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\mymulticolumn{2}{x{8.4cm}}{{\bf{5 Risk components}}} \tn 
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{\bf{Business Risk}} & {\emph{Fluctuations in cash inflows, notably sales.}} \tn 
% Row Count 13 (+ 2)
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{\bf{Financial Risk}} & {\emph{Amount of debt used to fund a firm's operations:}} high debt levels may threaten the firm's ability to pay dividends. \tn 
% Row Count 18 (+ 5)
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{\bf{Liquidity Risk}} & {\emph{The risk an investor holding equity in a company may be unable to sell them to another investor:}} chances of selling investments without losing a lot of money. \tn 
% Row Count 25 (+ 7)
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{\bf{Exchange rate risk}} & {\emph{The chances of losing money from changes in offshore currencies relative to the local currency:}} Adverse movements in exchange rates can erode the level of return the investor expects to receive. \tn 
% Row Count 34 (+ 9)
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\begin{tabularx}{8.4cm}{x{3.2 cm} x{4.8 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.4 Risky Assets (cont)}}  \tn
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{\bf{Country Risk}} & {\emph{Uncertainty of return from investments in another country:}} level of risk differs from country to country. \tn 
% Row Count 5 (+ 5)
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\mymulticolumn{2}{x{8.4cm}}{The greater the risk, the higher the premium to compensate.}  \tn 
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\begin{tabularx}{8.4cm}{x{3.44 cm} x{4.56 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.5 Measuring historical risk and return}}  \tn
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{\bf{Ex Ante}} & {\emph{before the event}} \tn 
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{\bf{Ex Post}} & {\emph{after the event}} \tn 
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{\bf{Holding Period}} & {\emph{the length of time an investment is owned}} \tn 
% Row Count 4 (+ 2)
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{\bf{Holding Period Yield (HPY)}} & {\emph{investment's percentage return over the period it was owned.}} \tn 
% Row Count 7 (+ 3)
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\begin{tabularx}{8.4cm}{x{2.8 cm} x{5.2 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.6 Standard deviation as a measure of risk}}  \tn
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{\bf{Variance}} & {\emph{measures how far each return is from the mean (average) of all returns.}} \tn 
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{\bf{Standard Deviation}} & {\emph{measures the variability of a set of values}} \tn 
% Row Count 5 (+ 2)
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\begin{tabularx}{8.4cm}{x{2.8 cm} x{5.2 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.7 Standard deviation as a measure of risk}}  \tn
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{\bf{Variance}} & {\emph{measures how far each return is from the mean (average) of all returns.}} \tn 
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\mymulticolumn{2}{x{8.4cm}}{} \tn 
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{\bf{Standard Deviation}} & {\emph{measures the variability of a set of values}} \tn 
% Row Count 5 (+ 2)
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\end{tabularx}
\par\addvspace{1.3em}

\begin{tabularx}{8.4cm}{X}
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\mymulticolumn{1}{x{8.4cm}}{\bf\textcolor{white}{6.8 Risk averse investors' investment rules}}  \tn
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\mymulticolumn{1}{x{8.4cm}}{{\bf{Investment rule 1:}} If two investment choices have the same expected returns, select the one with the lower expected risk. \newline % Row Count 3 (+ 3)
{\bf{Investment rule 2:}} If two investment choices have similar risk profiles, select the one with the higher expected return. \newline % Row Count 6 (+ 3)
An investor's tolerance for and attitude towards risk matters. \newline % Row Count 8 (+ 2)
In a world fraught with uncertainty and risk, diversification is the key.% Row Count 10 (+ 2)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
\par\addvspace{1.3em}

\begin{tabularx}{8.4cm}{x{2.72 cm} x{5.28 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.9 The benefit of diversification}}  \tn
% Row 0
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{\bf{Diversification}} & {\emph{The practice of spreading wealth over a variety of different assets.}} \tn 
% Row Count 3 (+ 3)
% Row 1
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 & Diversification works to reduce risk (variability), because it is unlikely that all investment assets will perform in exactly the same way. \tn 
% Row Count 9 (+ 6)
% Row 2
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{\bf{Diversify}} & {\emph{Place funds in a range of assets in order to spread risk:}} objective of investments. \tn 
% Row Count 13 (+ 4)
% Row 3
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{\bf{Unsystematic Risk}} & {\emph{Risk that can be minimized by diversification}} \tn 
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% Row 4
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{\bf{Systematic Risk}} & {\emph{Non-diversifiable risk:}} pertaining to uncertainty surrounding future economic conditions that affects all companies. e.g. war, international incidents, and inflation. \tn 
% Row Count 22 (+ 7)
% Row 5
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 & {\emph{The higher the systematic risk, the higher the return investors will be compensated.}} \tn 
% Row Count 26 (+ 4)
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\SetRowColor{LightBackground}
\mymulticolumn{2}{x{8.4cm}}{Some investments will perform well when others are performing poorly, so that the returns on assets will not move in the same direction at the same time.}  \tn 
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\end{tabularx}
\par\addvspace{1.3em}

\begin{tabularx}{8.4cm}{x{3.92 cm} x{4.08 cm} }
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\mymulticolumn{2}{x{8.4cm}}{\bf\textcolor{white}{6.10 CAPM}}  \tn
% Row 0
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{\bf{Capital Asset Pricing Model (CAPM)}} & {\emph{calculates the required rate of return of risk assets.}} \tn 
% Row Count 3 (+ 3)
% Row 1
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{\bf{Market Risk Premium (MRP)}} & {\emph{extra return investors require to compensate them for investing in the market portfolio.}} \tn 
% Row Count 8 (+ 5)
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\end{tabularx}
\par\addvspace{1.3em}


% That's all folks
\end{multicols*}

\end{document}