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Midterm

# midterm cheat sheet for FIN502

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Department
Finance
Course Code
FIN 502
Professor
Laleh Samarbakhsh

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Principals- Integrity, Objectivity, Competence, Confidentiality,
Professionalism, Diligence
Annual Percentage Rate (Nominal Rate) RORâ€“ignore compounding
effect(m x km)
Effective Annual Rate (EAR) â€“ Restated from APR to include
compounding (1+km)m -1 / If km is = 7%weekly, Pv=-4, N=52, I= 7, Fv= ?/
Hurdle Rate= The min acceptable rate of return Ã© min attractive rate of
return
Arithmetic - assumes no compounding â€“ is a straight average of all the
ROR
Geometric â€“ Assume compounding- 1.17 x 1.08 = 1.2636 FV, PV= -1, n=2,
i= ?
Ordinary or deferred annuity = occurs and the END of the period
Annuity Due = Occurs at the BEG of the period.
Constant Growth
FVCGA = x ((1+k)n â€“ (1+g)n ) / (k-g) )) k=ROR, g= (inflation) annual increase
in X
PVCGA = x (1- (1+g / 1+K)n / (k-g) )
Fisher Equation
Real Interest Rate (taking inflation back into a real rate) = (1 + Nominal
rate / 1 + inflation rate) -1
Nominal Interest Rate (putting inflation back into real rate) = [(1+ real
rate) (1 + Inflation Rate)] â€“ 1
Nominal / \$ Current = what they actually are / were / will be (includes
inflation)
\$ Real / \$ Constant â€“ without inflation
Nominal â€“ Interest or Discount Rate = with Inflation
Real â€“ interest or discount rate = without inflation
Inflation on prices = prices x (1 + inf)^years
Financial Planning Process (family)
1. Goal setting : These must reflect you own personal values
2. Actions plan: you must make decisions for yourself
3. Take action
4. Feedback/ monitoring progress
Financial Planning Process (Professional)
1.Establish the client-planner engagement
2. Gather client data; determine your goals and expectations
3. Clarify your present financial status; identify any problem areas and
opportunity
4.Develop and present the financial plan
5. Implement the Financial Plan
6.Monitor the financial Plan
Wn=Wo(FVIF n,k) + (E-C) (FVIFA n,k) >>> Wn=saving at retirement,
Wo=saving now, n= years to retire, K=rate of return on your savings,
E=earning each year, C=consumptions each year, E-C= Saving each year
until retirement
Wn = C boy (PVIFA n,k)
Personal Debt Management (Tips)
1.Consumer debt should not exceed 20% of take-home pay
2. Families should pay off consumer debt as soon as possible
3. Covert consumer loans into investment loans (if possible)
4.Before more consumer borrowing, check family has sufficient cash flow to
support debt
5. Pay off higher interest debt first (could include attaining more lower
interest debt, such as line of credit)
Child support above 150k income. .monthly pension is 0.74%,(1 child) ,
1.26%, 1.54%, 1.84%
Mediator â€“ Independent third party who helps
Arbitrator â€“ Like a private judge, binding, cost more, but faster
Chatper 7
Indexation â€“ tax brackets are increased each year to keep up with inflation
Interest or Ordinary income with Surtaxes
Tc = Combined marginal tax rate, Tf= marginal federal
rate, Tp= marginal provincial rate, Tsp= Provinvial surtax rate on the
marginal provincial tax
Dividends with Surtaxes
Tc(dividend) = [(1+G)tf â€“ DTCf]+ [(1+G)tp â€“ DTCp] (1+tsp)
Capital Gains with Surtaxes
Tc(gain) = (.5Tf) + .5Tp(1+Tsp)
After-Tax Discount Rate
Kt = Kb (1-Tc) Kb=beforetax
Max CPP 2013 contribution is \$51,100 (YMPE) first \$3500 of earning is
exempt from contributions. (Years basic Exemption) Contribution Rate is
4.95% of CPP pensionable earnings
Max EI 2013 is \$47,400 and contribution rate is 1.88%
>For employees, both CPP contributions and EI premiums are included in
the non-refundable tax credits.
>For CPP, employers pay the same as employees and these contributions
are tax deductible to the employer. Self-employed people pay both the
employeeâ€™s share (and include it in the nonrefundable tax credits) and the
employerâ€™s share (which is tax deductible).

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