Math Financial Equations

Introduction:

Most of the mathematical financial equations have been derived from the fundamental finance formulas which have been related to the time value of money. Some of the specific formulas that are in correspondence with the financial equations are derived using the derivatives of the fundamental formulas. Some of the mathematical finance equations include statistics, randomness and probability.

The mathematical finance equations are used to calculate and derive the answers for more complicated finance problems.


Symbols used in math finance equations:


There are various symbols that are used in the math finance equations which are listed below,
PMT represents the periodic payment
T indicates the terminal period or the last period
CF represents the flow of cash
FV indicates the future value
PV indicates the present value
rN indicates the nominal interest rate
rE represents the Effective interest rate where r = interest rate
m indicates the compounding frequency
B is used to indicate the balance
N represents the number of periods
G is to represent the rate of growth

Some basic math finance equations:


There are some of the fundamental formulas which are used to calculate the math financial equations.

The math financial equation used to calculate the number of payments is given by

N = - log (1-rFV / PMT)
log (1+r)

The equation to convert the interest rate compounding bases are given by

r2 = [(1+ (r1 / n2))n1/n2-1]n2

Here r1 indicates the original rate of interest with the compounding frequency n1, and r2 represents the stated interest rate with the compounding frequency n2.

The math financial equation which is used to calculate the future value of a single sum is given by

FV = PV (1+r) n

To calculate the future value with compounding the finance math equation is given by

FV = PV(1+(r/m))n-m

The equation used to calculate the future value of a cash flow series is given by

FV =`sum_(j-1)^n` CFj(1+r)j

The expanded net present value formula using the math financial equation is given by

NPV = `sum_(T=0)^T` CFT/ (1+r)T = CF0 + CF1/ (1+r)1 + CF2 / (1+r)2 + ... + CFT / (1+r)T

The present value of a single sum is calculated using the equation

PV = FV / (1+r) n

Thus the math financial equation which is used to calculate the present value with compounding is given by

PV = FV / (1+(r/m)) n-m