What is Financial Mathematic

Combines or applied the laws or principle of mathematic with definition and concept finance is a field financial mathematics. For example, to know how much interest I will be have for the sum of money have invested (known as the principal P)in t year, if simple interest rate bank i . This problem can be simple expressed as an equation :

I = P i t


How much your money (P) will be accumulated if that invested in bank with compunded interest rate i% for n year , can be simple calculate with equation

n

S = P (1+i)

So, with understood financial mathematic, we can solved problem about :

• How much retun investation
• How much monthly payment by credit for purchasing car, motorcyle, house etc
• Is a investment in real asset feasible
• How resceduling your borrowing
• How to choice the best return for investation opportunity
• and soon

that the notion of rates of interest is central to financial mathematics. Commonly, any two kinds of interest :

• Simple interest
• Compound interset

to be applied finance mathematics in many problem financing, you must understand some tools financial mathematics :
a. Cash Flow Conventions
b. Time Diagram
c. Financial calculator or financial function in spreadsheet like excel, gnumeric .

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