Summary Week 3 MATH

Week 3 Maths

Monday: CH11 Topics in financial mathematics
Subjects:

Financial decision making, the law of one price and interest rates. (chapter 3,4 and 5,
corporate finance book)

- Valuing decisions
- Time value of money (interest rates)
- The interest rate (over time) -> 2 factors
Rf-> risk free interest rate
See 2 examples, is the investment worth it?

PV and FV -> present value and future value (could be various, problem, 1 y, 2y, 14y)

- Present value and the NPV decision rule
- Arbitrage and the law of one price

- Valuing a security with the law of one price
- Determining the no-arbitrage price
- Determining the interest rate from bond prices
- Valuing a portfolio
- The timeline (period stays the same (monthly interest rate-> cash flow also
monthly. Hour, week….)
- Three rules of time travel
- Cash flow streams (values)
- Future value of cash flow streams
- Perpetuities -> example in slides
- Annuities
- Growing perpetuity
- Growing annuity
- Solving for the cash payments
- The internal rate or return -> IRR

Interest rates
- Interest rate Quotes and Adjustments
. The effective annual rate (effect of compounding)
. Interest rate quotes and adjustments
. The annual percentage rate (apr)



Wednesday Ch8 and 9 single variable optimizations
Concave: