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ProfessionalApplied Math
Financial Mathematics
Interest, investments, loans and annuities
Essential financial math for professionals โ compound interest, NPV, IRR and loan calculations.
โ Simple Interest: I = PRTโ Compound Interest: A = P(1+r/n)โฟแตโ PV = FV/(1+r)โฟ
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๐ 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)โฟแต 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 = ฮฃ[CF/(1+r)แต] โ 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)โฟ and FV = PV(1+r)โฟ.
๐ Key Points to Remember
- โSimple Interest: I = PRT
- โCompound Interest: A = P(1+r/n)โฟแต
- โPV = FV/(1+r)โฟ
- โNPV > 0 โ accept investment
- โIRR = rate where NPV = 0
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