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FCS Exam 1
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Terms in this set (2)
Unit 01
1. Relative price and Nominal price
[RPx = Relative price of commodity x] [NPx = Nominal price of commodity x]
[NPb = Nominal price of base commodity] [Formula: RPx = NPx / NPb]
Unit 02
1. Inflation rate and the purchasing power of money
[Yn = The purchasing power of one dollar after n years] [ia = Annual inflation rate]
[n = Number of years_Formula: Yn = (1/1+ia)^n]
2. Calculate inflation rate from CPI numbers
[iAB = inflation rate from year A to year B] [CPIA=CPI for year A]
[CPIB=CPI for year B] [Formula: iAB = (CPIB/CPIA) - 1]
Note: This is just a regular percentage computation formula
3. Formula for converting one year's dollar into another year's dollar:
[B = year B] [A = year A] [YB ->A = converting money from year B to year A]
[Formula: YB -> A = YB x (CPIA / CPIB)]
4. Real interest rate and Nominal interest rate
[nr = nominal interest rate] [rr = real interest rate] [I = inflation rate]
Formula:
Note: These two formulas depict the same relationship. One can be derived from the other.
5. Expected value computation
Expected value = Sum of (outcome i * probability of outcome i)
Unit 03
[FV=future value] [P = lump sum principle] [Pp=amount of periodical payments]
[r = interest rate for a certain period n = number of periods]
1. Future Value Factor Formula: FVF = (1+r)^n
2. Future value for one time lump sum investment = FV = P*FVF
3. Future Value Factor Sum (BOM)
4. Future Value Factor Sum (EOM)
5. Future value for equal periodical investment = FV=Pp*FVFS
Unit 04
[PV=present value] [P = lump sum amount] [Pp=amount of equal periodical payment]
r = discount rate for a certain period (often we use interest rate to approximate discount rate)
n = number of periods
1. Present Value Factor PVF = 1/(1+r)^n
2. Present value for one time lump sum payment = PV=P*PVF
3. Present Value Factor Sum (BOM)
4. Present Value Factor Sum (EOM)
5. Present value for equal periodical payments = PV=Pp*PVFS
Unit 05
1. Predicting inflation rate
Predicted inflation rate in year A = Money supply growth rate in year (A-2) - Economy growth rate in year A
Unit 06
1. Interest rate spread
The interest rate spread = long-term interest rate - short-term interest rate
5+2
7
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