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The document discusses various financial mathematics concepts including compound interest, effective interest rates, derivatives, elasticity, and costs. Formulas are provided for compound interest, multiple compounding periods, continuous compounding, savings accumulation, loan amounts, net present value, derivatives, marginal costs, and profit maximization.

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14 views

Notes

The document discusses various financial mathematics concepts including compound interest, effective interest rates, derivatives, elasticity, and costs. Formulas are provided for compound interest, multiple compounding periods, continuous compounding, savings accumulation, loan amounts, net present value, derivatives, marginal costs, and profit maximization.

Uploaded by

fiseco4756
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FINANCE MATHEMATICS

Compound Interest:
N
C=P ×( 1+ I )
−N
P=C ×( 1+ I )
With:
C: Compound Amount
P: Principal
I: Annual Interest
N: Number of Years

Multiple Times Compound Interest:


FoC × N
I
C=P ×( 1+ )
FoC
−FoC × N
I
P=C ×( 1+ )
FoC
With:
C: Compound Amount
P: Principal
I: Annual Interest
N: Number of Years
FoC: Frequency of Compound

Effective Rate:
n
I
I e =(1+ ) −1
n
With:
I e: Effective Rate

I: Annual Rate
n: Number of Periods

Continuous Compound Interest:


I×N
C=P ×e
−I ×N
P=C ×e
With:
C: Compound Amount
P: Principal
I: Annual Interest
N: Number of Years

Accumulated Savings:
FoC × N
I
(1+ ) −1
I FoC
TV =P . ×(1+ )×
FoC FoC
With:
TV: Total Value
P.: Equal payment distributed evenly
I: Annual Interest
N: Number of Years
FoC: Frequency of Compound

Actual Loan Value:

( )
−FoC × N
I
1− 1+
FoC
AV =P . ×
I
FoC
With:
AV: Total Value
P.: Equal payment distributed evenly
I: Annual Interest
N: Number of Years
FoC: Frequency of Compound

NPV =Revenue−Cost
1
Future n
IRR=( ) −1
Present
With:
n: Number of Periods

DERIVATIVE

Basic Theorem
'
n =0
' ' '
(a+ b) =a +b
' ' ' ' '
(ab) =a b +a b →(nx ) =n x

()
' ' '
a a b−a b
= 2
b b
' n−1
( x ¿¿ n) =n x ¿
' 1
( √ x) =
2 √x

Chain Rule
If z = z(y) and y = y(x)  z(x) = z(y(x)) and
dz dz dy
= ×
dx dy dx
When z and y are derivable

Point Elasticity
% change ∈demand p ∆ q
E= = ×
% change ∈ price q ∆p

( )
p dq p 1
E= × ¿ ×
q dp q dp
dq

If |E| = 1  Demand is of unit elasticity


If |E| < 1  Demand is inelastic
If |E| > 1  Demand is elastic

Second Order Derivative


f ′′(a) > 0 then f attains a minimum value at a  The curve will bends up ward at x = a
f ′′(a) < 0 then f attains a maximum value at a  The curve will bends down ward at x = a

Marginal Cost
∆ C C ( q+∆ q )−C (q )
=
∆q ∆q

Maximum Profit
'
MR ( q )=MC ( q )∧M R ( q )< MC ' (q)

Total Production Cost


fM kq
TC ( q )= + gM +
q 2
With
q: Quantity produced
k: Storage cost
f: Fixed cost
g: Production cost
M: Annual units
Or: q=
√ 2 fM
k

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