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Core 2 Finance Recursion Summary Notes

The document discusses financial math concepts like simple interest, compound interest, annuities, and other topics. It provides recurrence relations and formulas for calculating future values and presents examples of applying these concepts using Mathematica. Yellow cells contain formulas, blue cells provide explanations, and examples are given to demonstrate calculating concepts like interest, depreciation, loans, and investments over time in Mathematica.

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yongmei zhang
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29 views7 pages

Core 2 Finance Recursion Summary Notes

The document discusses financial math concepts like simple interest, compound interest, annuities, and other topics. It provides recurrence relations and formulas for calculating future values and presents examples of applying these concepts using Mathematica. Yellow cells contain formulas, blue cells provide explanations, and examples are given to demonstrate calculating concepts like interest, depreciation, loans, and investments over time in Mathematica.

Uploaded by

yongmei zhang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Financial Maths 4a Amortisation FV↓ 4b Amortisation FV↑ 2 Effective Interest Rate

Recurrence Relation Application Explicit Rules Graphs Mathematica


command#
Arithmetic 𝑣0 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙, 𝑣𝑛+1 = 𝑣𝑛 + 𝐷 Simple Interest 𝑣𝑛 = 𝑣0 + 𝑛 ∗ 𝐷 7a Interest in $
Sequences 7b Table graph
𝑟 7c Future Value
D = 100 × 𝑣0

D 𝑣0 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑉𝑎𝑙𝑢𝑒, 𝑣𝑛+1 = 𝑣𝑛 ― 𝐷 Flat Rate Depreciation 𝑣𝑛 = 𝑣0 ― 𝑛 ∗ 𝐷 9a depreciate $


9b Table graph
𝑟 9c Future Value
D = 100 × 𝑣0
Common
𝑣0 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑉𝑎𝑙𝑢𝑒, 𝑣𝑛+1 = 𝑣𝑛 ―𝐷 Unit Cost Depreciation 𝑣𝑛 = 𝑣0 ― 𝑛 ∗ 𝐷 10a Table graph
difference 10b Future Value

D = 𝑈𝑛𝑖𝑡 𝑐𝑜𝑠𝑡 𝑖𝑛 𝑑𝑜𝑙𝑙𝑎𝑟𝑠

Geometric 𝑣0 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙, 𝑣𝑛+1 = 𝑅 ∗ 𝑣𝑛 Compound Interest 𝑣𝑛 = 𝑅 𝑛 ∗ 𝑣0 8a Common Ratio


Sequences 8b Table graph
𝑟 8c Future Value
R = 1 + 100
R
Common Ratio 𝑣0 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑉𝑎𝑙𝑢𝑒, 𝑣𝑛+1 = 𝑅 ∗ 𝑣𝑛 Reduced Balance Depreciation 𝑣𝑛 = 𝑅 𝑛 ∗ 𝑣0 5/11a Common Ratio
11b Table graph
Growth Factor 11c Future Value
Decay factor 𝑟
R=1―
100
Combined 𝑣0 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑉𝑎𝑙𝑢𝑒, 𝑣𝑛+1 = 𝑅 ∗ 𝑣𝑛 ― 𝐷 FV → Interest Only Loan 6 Common Ratio
3d Table Graph
Arithmetic /Perpetuities 3a Common Difference
𝑟 𝑟
& R = 1 + 100∗𝑝 D = × 𝑣0 / Interest in $
100∗𝑝
Geometric / Payment

Sequences
6 Common Ratio
R 𝑣0 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑉𝑎𝑙𝑢𝑒, 𝑣𝑛+1 = 𝑅 ∗ 𝑣𝑛 ― 𝐷 FV↓ Reduced Balance Loans Compound 3d Table Graph
Growth Factor /Annuities Interest loan 3b Future Value
𝑟 12a Final Pymnt
R=1+ extra payment 12b Total payment
100∗𝑝
12c Total Interest
D 13 Partial Interest
Repayment 𝑣0 = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑉𝑎𝑙𝑢𝑒, 𝑣𝑛+1 = 𝑅 ∗ 𝑣𝑛 + 𝐷 FV↑ Compound Interest 6 Common Ratio
1 Table graph
Investment 3c Future Value
𝑟
R = 1 + 100∗𝑝 Annuity Investment

Note: Yellow parts need real number, blue parts are formula to calculate, Letter P indicates Compounding monthly etc. Needing rate per month, Monthly Ratio etc.
− due to regular payment to make FV ↓
Effective Interest Rate in Mathematica

Reducing Balance Loan in Mathematica

− due to regular payment to make FV ↓


Interest Only Loan in Mathematica

Annuity in Mathematica

− due to regular payment to make FV ↓


Perpetuity in Mathematica

+ due to regular payment to make FV ↑

Notes: If calculating interest during midway the loan (i.e. loan has not reached a value of 0 yet), then the calculation is as follows:
Total number of repayments − reduction in principle (initial loan amount − current loan balance)

Compound Interest Investment or Annuity Investment in Mathematica

+ due to regular payment to make FV ↑


𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑅𝐸𝐺𝑈𝐿𝐴𝑅 𝑝𝑎𝑦𝑚𝑒𝑛𝑡
FV ↓ Final Payment, Time = = Number of Regular payment/ Number of payment per year
Number of payment per year

Four values involved: rate per annum, number of payment per year, initial value, interest in dollars

Generating Table values and Graphs

Four values involved: rate per annum, number of payment per year, initial value, Time in Years

Commands needed for comparing tables or graphs


Example: Reduced Balance Depreciation
initial Value=30000, Common Ratio 0.92, depreciating monthly, Future values after 3 years in table and graph

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