Mathematics of Finance

Pamela P. Drake, Frank J. Fabozzi and Francesco A. Fabozzi

Chapter 5 in Introduction to Finance:Financial Management and Investment Management, 2022, pp 101-144 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Investment decisions made by financial managers to acquire capital assets, such as plant and equipment, and asset managers, to acquire securities such as stocks and bonds, require the valuation of investments and the determination of the yield on investments. How do we value an investment or determine the yield on an investment? We use the principles of the time value of money. The mathematical concepts of the time value of money allow financial and asset managers to translate future cash flows to a value in the present, translate a value today into a value at some future point in time, and calculate the yield on an investment. The time-value-of-money mathematics allows for an evaluation and comparison of investments and financing arrangements and is the subject of this chapter.

Keywords: Financial Management; Investment Management; Derivatives; Common Stock; Bonds; Company Analysis; Entrepreneurial Finance; Financial Instruments; Financial System; Financial Statements; Time Value of Money; Yields; Present Value; Future Value; Financial Strategy; Dividend Policy (search for similar items in EconPapers)
JEL-codes: G1 G3 N2 O16 (search for similar items in EconPapers)
Date: 2022
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