7 Multipliers

Question 1

What is the formula for the amount of £1?

Answer 1

A = (1 + i)^n

Question 2

Define the present value of £1

Answer 2

Amount that £1 in the future is worth now. It is the opposite to the amount of £1.

Question 3

What is the formula for the present value of £1

Answer 3

1 / (1 + i)^n

Or

1 / A

Question 4

Define the amount of £1 per annum

Answer 4

The amount of £1 invested at the end of each year will accumulate to at compound interest.

Question 5

What is the formula for the amount of £1 per annum

Answer 5

((1 + i)^n - 1) / 1

Or

(A - 1) / 1

Question 6

Define the annual sinking fund

Answer 6

What a regular investment has to be in order to grow to a certain amount

Question 7

What is the formula for the annual sinking fund

Answer 7

i / ((1 + i)^n - 1)

Or

i / (A - 1)

Question 8

Define Years Purchase in Perpetuity

Answer 8

To value an income receivable from today until forever. I.e, the present value of £1 forever.

Question 9

What is the formula for Years purchase in perpetuity

Answer 9

1 / i

Question 10

Define years purchase for a term of years

Answer 10

To value an income stream from today but for a certain time

Question 11

What is the formula for years purchase for a term of years

Answer 11

(1 - (1 / (1 + i)^n)) / i

Or

(1 - A^-1) / i

Question 12

Define years purchase of a reversion to perpetuity

Answer 12

To value an income stream that will be received forever, but will not start being received until some point in the future.

Question 13

What is the formula for years purchase of a reversion to perpetuity

Answer 13

1 / i(1 + i)^n

Or

1 / A x i

Question 14

What is the years purchase of a reversion to perpetuity formula made up of?

Answer 14

Years purchase in perpetuity x present value of £1

I.e,

(1 / i) x (1 / (1 + i)^n) = 1 / i(1 + i)^n)

Question 15

Define the amount of £1

Answer 15

The amount of £1 will accumulate to in the future.