Basic financial arithmetic

Simple interest

Compound interest

Multiple payments

Differing interest rates

Nominal and effective rates

Continuous discounting

Conversions and comparisons




File: MFMaths3e_02.xls

This chapter deals with the basic concepts of financial mathematics which underpin investment analysis, bonds, derivatives, leasing and many other examples. Companies and individuals face the problem of investing today in the hope of some financial gain or reducing expenditure. Investing is risky, so companies expect a suitable return for both known and unknown risks. Similarly, investors require some extra return for investing in risky assets. This is the time preference of money as the basic financial theory, which depends ...

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