Questions having to do with financial mathematics. Please note that for questions in quantitative finance, quant.stackexchange.com is perhaps a better site.

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1answer
27 views

Future value of investment with quarter payment

I'm a bit stuck on this problem, tried to solve it, but I don't know what is wrong with my way of thinking. A bank offers a deposit with the interest rate of 5% per annum with quarterly interest ...
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1answer
104 views

The meaning of “average annual compound rate”

I am currently working on this problem and I am having a hard time finding the right number. A mutual fund advertises that average annual compound rate of returns for various periods ending Dec 31 ...
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0answers
37 views

Finding the annual withdrawal, given initial and final amounts, and interest rate

I am working on the following problem and I keep getting a different answer. The principal $P=10,000$. The annual interest rate is $i=4\%$. The money is deposited at time 0 and the interest is ...
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1answer
30 views

Find the balance using Investment Year Method…

Here's the problem: Now, here is what I did: Since we invested $\mathbb{$}1000$ at the beginning of $1989,1990$, and $1991$, we find the balance of each contribution over the specified ...
2
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2answers
83 views

Are there other accumulation functions that holds $a(n-t)={a(n) \over a(t)}$?

This might be a beginner's question regarding accumulation methods and their functions, but so far I have learned that compound interest satisfy $$a(n-t)={a(n) \over a(t)}$$ Which allows nice ...
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2answers
232 views

Deriving Black Scholes using CAPM

I am referring to http://www.frouah.com/finance%20notes/Black%20Scholes%20PDE.pdf Section 3, which is a bit more detailed version of the original derivation from ...
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1answer
84 views

Calculate repayments amount on loan

I doing some work on a client website, however I'm finding it difficult to calculate the correct interest amount. I have the principle amount, for example £200 The loan is repaid over 3 months in ...
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1answer
99 views

Derivation of Efficient Frontier (portfolio optimization) question

In Robert Merton's derivation of the efficient frontier of a portfolio, he minimizes $\frac{1}{2}\sigma^2 $ over the investment weights in each asset, where $\sigma^2$ represents portfolio variance. ...
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1answer
49 views

Put-Call Parity

This question is from Pliska's "Introduction to Mathematical Finance" Suppose the interest rate r is a scalar, and let c and p denote the prices of a call and put, respectively, both having the same ...
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2answers
58 views

What is a discount?

I am learning some financial terms and am having trouble understanding what a discount $d$ is. Numerically, I understand that it is defined as $\frac{i}{1+i}$ but I do not intuitively understand what ...
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1answer
103 views

How to calculate total loan knowing only the APR, term and monthly payments?

I'm building a loan calculator with two different methods of user entry. One one side the user can enter their desired loan amount and specify a term and it will display the overall loan amount and ...
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1answer
24 views

Help on understanding tax bracket computation

Warning: some codes Tax Bracket: 1 up to 5,070 ---- 10% ...
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2answers
66 views

Present Value (Interest)

The question goes like this: What deposit made today will provide for a payment of 1000 in 1 year and 2,000 in 3 years, if the effective rate of interest is 7.5%? The answer given by the book is ...
2
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1answer
34 views

Saving for retirement - how much?

I'm working through a problem in the book "An Undergraduate Introduction to Financial Mathematics" and there is an example I can follow. The problem is: Suppose you want to save for retirement. The ...
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1answer
142 views

Recursive Solution to Interest with Monthly Deposits

I open an account at a bank with 1% interest compounded monthly. I'm adding $100 to it at the beginning of each month (starting with month 1). (a) Set up a recurrence relation for the amount in the ...
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1answer
80 views

Problem regarding equation of value and nominal discount…

Here's the full problem: Xiang and Dmitry are friends. They agree that Xiang will pay Dmitry $\mathbb{$}800$ immediately and another $\mathbb{$}200$ at the end of three years. In return, Dmitry ...
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1answer
85 views

Problem involving nnual dollar-weighted yield-rate on stocks…

Full problem: Arthur buys $\mathbb{$}2000$ worth of stock. Six months later, the value of the stock has risen to $\mathbb{$}2200$ and Arthur buys another $\mathbb{$}1000$ worth of stock. After ...
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1answer
113 views

Guess-and-check for annual effective interest rate and annual yield rate

Here is the full problem: Kurt loans Randy $\mathbb{$}14000$. Randy repays the loan by paying Kurt $\mathbb{$}4000$ at the end of one year and $\mathbb{$}6000$ at the end of two years and as well ...
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0answers
27 views

Does interest apply for the last month of an amortization?

I'm working out the loan repayments using the amortization formula $$\frac{\text{principal} \cdot \text{paymentPercentageInDecimal}}{1 - (1 + \text{paymentPercentageInDecimal})^{-\text{payments}}}$$ ...
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2answers
63 views

Amortize the debt problem

Monthly payments are made on 130000 dollars at 5% for 25 days. Determine the payment needed to amortize the debt.
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1answer
69 views

Solving Black scholes PDE using Laplace transform

I'm trying to obtain the Laplace transform of Call option price with repect to time to maturity under the CEV process. The well known Black scholes PDE is given by $$ ...
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1answer
36 views

Prove $\sigma_V=x\sigma_S$. (Financial Mathematics)

Prove that the standard deviation of the value $V(T)$ at time of any portfolio $(x,y)$ at time $T$ in a one-step binomial is given by $\sigma_V=x\sigma_S$, where $\sigma_S$ is the standard deviation ...
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1answer
34 views

Is there a way to do this? Fixed deduction for x rounds where total = fixed amount

I am trying to calculate the reduction amount / step per round for the given: rounds = 1000 points = 80 starting at reward = 1 point So from round 1 which has a reward of 1 point deduct a fixed ...
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1answer
63 views

Markov property question

In every book I can find, the Markov property for ito diffusions, $E[f(X_{t+h})\mid F_s] = E^{X_t}f(X_h)$ is stated for $\textbf{bounded}$ Borel functions. However, I have the following statement ...
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1answer
28 views

Compound interest problem with increasing deposits

An Investor starts with an initial investment : $A$ He earns a steady profit of 10 percent per year. But every year he adds additional amount which increases by 15 percent every year. At the end of ...
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0answers
59 views

Reverse Engineer Math(financial) Answer.

I'm starting to question the Payment amount generated by the software my lender is using, but it could be my calculations that are wrong. I would like confirmation before I proceed. Is my approach ...
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0answers
57 views

Locate proof of Second Fundamental Theorem of Asset Pricing

Where can I find a $\textbf{rigorous}$ proof of the Second Fundamental Theorem of Asset Pricing. That is, A market is complete if and only if it has a unique risk neutral measure. Please do not ...
2
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1answer
70 views

On estimating monthly credit card payment amounts (some pragmatic constraints inside)

Right off the bat, I do hope this question doesn't attract a bunch of derisive comments about my personal affairs. I give the lengthy personal anecdote because I don't have the mathematical training ...
2
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2answers
36 views

Question about a summation problem from finance

I'm studying a journal article about finance and I have trouble understanding how the author reach a result. The equation he begins with is: $$VTS_0=TD_0+T\Sigma_1^\infty PV_0[ΔD_t] \tag 1$$ Then ...
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2answers
206 views

Find prize per unit that will maximize profit at a given $x$-value

Struggling while reviewing my old math books. The problem has a prize-function and wants to know how the prize-per-unit should be chosen to maximize the profit at $\mathbf{x=160}$. First I look ...
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1answer
262 views

Effective interest rate given two loan payment options…

Here's the full problem: You have two options to repay a loan. You can repay $\mathbb{$}6000$ now and $\mathbb{$}5940$ in one year, or you can repay $\mathbb{$}12000$ in $6$ months. Find the ...
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0answers
59 views

Intuition behind American option pricing

The price of an American option is given by $V_n = \max\{G_n, \frac{1}{1 + r}(pV_{n +1}(H) + qV_{n + 1}(T)\}$, where $p$, $q$ are the risk neutral probabilities. I have two questions. How can ...
2
votes
1answer
86 views

Understanding APR - can it be calculated as a dollar amount

If the APR (as used in the US Truth in Lending Act) is considered "the cost of your credit as a yearly rate," can an APR be converted to a dollar amount? For example 10% simple interest per year on a ...
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1answer
58 views

My doubt about a problem of financial mathematics.

I state that I am italian, so, if there are some mistake in my questions say it to me, and I correct as soon as possible. I've known this forum in an italian forum about molecular biology, where I was ...
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1answer
77 views

ROI Forumla for this scenario

I couldn't come up with a proper formula for the scenario below. I'm not so good at Maths. With, $X$ - monthly gains in percentage $C$ - Initial capital $N$ - number of years $M$ - Amount ...
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2answers
57 views

Pay back loan with an annual withdraw

I was given question 7b as homework: I am guessing that there are numerous ways of approaching this. The one method I have tried was to calculate the effective interest year for the year. Then ...
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1answer
115 views

How do i solve this to find PMT?

I know this may seem like a stupid question but i've been up late working on this math assignment and this question just isn't working when i transpose it. So this is the formula to find Present ...
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2answers
55 views

Bactracking to find compound interest

I'm trying to find what percentage 5000 dollars compounding monthly over 120 months will be if the final sum will be 7000 dollars. So: 7000=5000(1+r/12)^120 When working backwards to find r I ...
5
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2answers
426 views

Proof of the Black - Scholes pricing formula for European Call Option

I want to prove the following The price of a European call option with strike price $K$ and time of maturity $T$ is given by the formula $\Pi(t) = F(t,S(t))$, where $$F(t,s) = ...
2
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2answers
61 views

Vanilla swap payoff

The payoff of a plain vanilla swap with respect to measure $Q$ is : $$V_{\mathrm{swap}}(t) = \beta(t) \sum_{n=0}^{N-1} \tau_n E_t^Q \left( \dfrac{1}{\beta(T_{n+1})} ( L(T_n, T_n, T_{n+1}) - k) ...
0
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1answer
173 views

Derivation of Black-Scholes equation by riskless portfolio

The following is a summary of the derivation of the Black-Scholes equation as given on wikipedia (http://en.wikipedia.org/wiki/Black-Scholes_equation#Derivation) - I have a question regarding the ...
0
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1answer
26 views

Formula for fitting step-wise increasing loan payments into a given term

My company is developing a product that helps people project out what-if scenarios for paying down their student loan debt. One of the government options for paying off debt is called the "graduated" ...
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2answers
72 views

How much more than will you pay on a 30 year mortgage than if you paid it all up front?

There are hundreds of loan calculators online but none of them tell me this, Say I take out a 30 year mortgage on a 80,000 dollar house for 4% interest. How much more than $80k will I spend at the ...
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1answer
28 views

Question on interest

I have a question about interest on a loan from a family member, and it is difficult figuring out. I borrowed \$35,000 @ 3.5% in June, 2013, and here's the break down of the payments I've made: ...
0
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1answer
86 views

What is the purpose of a trailing minus sign?

I cashier at a grocery store and the POS system we use (SurePOS by IBM/Toshiba) uses trailing minus signs for all of its representations of negative numbers. Examples: Coupon being rung up: ...
5
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0answers
337 views

In stochastic calculus, why do we have $(dt)^2=0$ and other results?

I'm doing actuarial problems of Exam MFE and it covers some of the stochastic calculus (like Ito's Lemma). One of the frequently used results are the so-called "multiplication rules": $(dt)^2=0$ ...
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1answer
109 views

Break Even Point

Suppose that x thousand units of a product will be sold when the price is p(x) = 50 - 1.25x dollars per unit and the cost of producing x thousand units is C(x) = 20x + 100 thousand dollars. a) What ...
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1answer
54 views

Deffered annuity with perpetuity

An annuity immediate has $40$ initial quarterly payments of $20$ followed by perpetuity of quarterly payments of $25$ starting in the eleventh year. Find the present value at $4\% $ convertible ...
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2answers
154 views

Basic question mathematical finance, law of one price in single period markets.

I am reading Pliskas Introduction to mathematical finance. And I am at single period models. It is the law of one price I am having a hard time of understanding. I have some questions about this: ...
0
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1answer
54 views

Dynamics of short rate in HJM

According to a simplified HJM framework, we have: Forward Rate: $f(t,T)=\sigma W_t +f(0,T) +\int_0^t{\alpha(s,T)}ds$, where $W_t$ is brownian motion. Dynamics of forward rate: ...