Chapter 4 Managing Money - Formulas
Unit 4A Taking Control of Your Finances
● Monthly Cash Flow = Total Monthly Income - Total Monthly Expenses
Unit 4B The Power of Compounding
𝐴 = Amount a the end of the investment
𝑃 = Principal or initial amount invested
𝐴𝑃𝑅 = Annual percentage rate
𝐴𝑃𝑌 = Annual percentage yield
𝑌 = Years
𝑛 = Number of compoundings per year
● Simple Interest
𝐴 = 𝑃(1 + 𝐴𝑃𝑅 × 𝑌)
𝐴𝑃𝑌 = 𝐴𝑃𝑅
● Compound Interest for Interest Paid Once a Year
𝑌
𝐴 = 𝑃(1 + 𝐴𝑃𝑅)
𝐴𝑃𝑌 = 𝐴𝑃𝑅
● Compound Interest for Interest Paid 𝑛 Times Per Year
𝐴𝑃𝑅 (𝑛×𝑌)
𝑛
𝐴𝑃𝑅 𝑛
(
𝐴𝑃𝑌 = (1 +
𝐴=𝑃 1+
𝑛
)
)
−1
● Compound Interest for Continuous Compounding
(𝐴𝑃𝑅×𝑌)
𝐴 = 𝑃 ×𝑒
𝐴𝑃𝑅
𝐴𝑃𝑌 = 𝑒
−1
Unit 4C Savings Plans and Investments
𝑃𝑀𝑇 = Regular payment amount
● Savings Plan Formula (Regular Payments)
𝐴 = 𝑃𝑀𝑇 ×
(
⎡ 1+ 𝐴𝑃𝑅
⎢
𝑛
⎣
(𝑛×𝑌)
)
( )
−1⎤⎥
⎦
𝐴𝑃𝑅
𝑛
● Total Return
(𝐴−𝑃)
𝑃
𝑡𝑜𝑡𝑎𝑙 𝑟𝑒𝑡𝑢𝑟𝑛 =
● Annual Return
𝐴 (1/𝑌)
𝑃
( )
𝑎𝑛𝑛𝑢𝑎𝑙 𝑟𝑒𝑡𝑢𝑟𝑛 =
−1
● Current Yield of a Bond
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑖𝑒𝑙𝑑 =
𝑎𝑛𝑛𝑢𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑝𝑎𝑦𝑚𝑒𝑛𝑡
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑏𝑜𝑛𝑑
Unit 4D Loan Payments, Credit Cards, and Mortgages
● Loan Payment Formula (Installment Loans)
𝑃𝑀𝑇 =
( )
⎡1− 1+
)
⎢ (
⎣
𝐴𝑃𝑅
𝑛
𝑃×
𝐴𝑃𝑅 (−𝑛×𝑌)⎤
⎥
𝑛
● Total Number of Payments
𝑛×𝑌
● Total Amount Paid
𝑃𝑀𝑇 × 𝑛 × 𝑌
⎦