Here's an ever-growing list of useful financial formulas/definitions (to save you hours trawling google and jargony finance websites)
< = less than
> = greater than
Alpha
How well a fund performs relative to its benchmark - how much it's returns are above or below the benchmark
Beta
Estimate of how volatile a fund is in relation to its benchmark (benchmark is assumed = 1. So if a fund's beta is < 1 = low volatility or > 1 = high volatility)
Future Value (Compound Interest)
(what a present value will be worth in the future)
FV = PV x (1 + i)^t
where
PV = Present value
i = interest rate (assuming it stays the same through out the time period)
t = time period
e.g. I have $100 today. If I invest it for 7 years at 6% p/a interest how much will it be worth?
FV = 100 x (1 + .06) ^ 7
FV = 100 x (1.06)^7
FV = 100 x 1.5036
FV = 150.36
Present Value
(what a future value is worth today)
PV = FV / (1 + i)^t
e.g. I want to have saved $5,000 in 4 years by depositing a lump sum into an account earning 7%. What value lump sum do I need to deposit today?
PV = FV / (1 + i)^t
PV = 5000 / (1 + .07)^4
PV = 5000 / (1.07)^4
PV = 5000 / 1.3107
PV = 3814.48
% increase / decrease
(determining what % a value has increased or decreased by)
((ending value - starting value) / starting value) x 100
e.g. I purchased a share $5,000 and now its worth $50,000. What % has my share increased by?
(50,000 - 5,000) / 5000 = 9 = 900%
if the answer is positive = increase, if negative = decrease
