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ProfessionalApplied Math
Financial Mathematics
Interest, investments, loans and annuities
Essential financial math for professionals — compound interest, NPV, IRR and loan calculations.
✓ Simple Interest: I = PRT✓ Compound Interest: A = P(1+r/n)ⁿᵗ✓ PV = FV/(1+r)ⁿ
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📖 Understanding Financial Mathematics
Simple Interest: I = PRT where P=principal, R=annual rate, T=time in years. Total = P + I. Used for short-term loans.
Compound Interest: A = P(1 + r/n)ⁿᵗ where n=compounding frequency, t=years. Money grows faster than simple interest because interest earns interest.
Net Present Value (NPV) determines if an investment is worthwhile. NPV = Σ[CF/(1+r)ᵗ] − Initial Investment. If NPV > 0, accept the investment.
Time Value of Money: A dollar today is worth more than a dollar in the future due to inflation and investment potential. PV = FV/(1+r)ⁿ and FV = PV(1+r)ⁿ.
🔑 Key Points to Remember
- ✓Simple Interest: I = PRT
- ✓Compound Interest: A = P(1+r/n)ⁿᵗ
- ✓PV = FV/(1+r)ⁿ
- ✓NPV > 0 → accept investment
- ✓IRR = rate where NPV = 0
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