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

learn more… | top users | synonyms

0
votes
1answer
412 views

Real-world example for utility theory

I'm stuck with Utility Theory. As I understand it, we have vector $\vec{x}$ representing evidence about the world $n$ possible states of the world $S = \{S_{1}, S_{2}, ..., S_{n}\}$ $m$ possible ...
0
votes
1answer
95 views

Reducing balance with overall percentage

Hi I have an item for £4000 which should have a reduction of 20% over the year. I want to calculate the value for each month. What equation would I use?
4
votes
1answer
187 views

Maximizing gambling performance over the long run

Background. We can play a game in which we can put one dollar and get out $X$ dollars, where $X$ is 2 dollars with probability $p>1/2$, or zero dollars with probability $1-p$. We also assume that ...
0
votes
2answers
215 views

Resolving a paradox concerning an expected value

We have a coin that has a probability $p>1/2$ of coming up heads (and probability $1-p$ of coming up tails). We now play the following game: We start with a fortune of one dollar. We toss the ...
0
votes
1answer
51 views

Is there a way to find precision used based on margin of error in compound interest problem?

As the question states, is there a way to find precision used based on margin of error in compound interest problem? The question is based off the following scenario: A financial system that ...
0
votes
2answers
47 views

Calculating monthly reduction in value

If I can assume a value of $100,000 will reduce by a sum of say 25% each year, how do I calculate the amount it will reduce by each month over a period of 3 years.
1
vote
2answers
19k views

Calculate gross salary when knowing the net salary and tax brackets

Assume the annually gross salary is $100,000. Tax brackets: 0 - 50K - 10% = 5K in taxes 50K - 70K - 20% = 4K in taxes 70K - $90K - 30% = 6K in taxes 90K and up - 40% = 4K in taxes The income tax ...
4
votes
2answers
177 views

Calculating credit card charges based on provided APR, balance amount and monthly payment amount?

Please first see the below sums and then the info below it to get a better understanding of my question: My input: ...
1
vote
1answer
365 views

Determining tax percentage

I'm working a problem, attempting to find a income tax rate that will change depending on the gross paycheck amount. Some data points: $800 gross = 11% taxed $1500 gross = 16% taxed $2000 gross = ...
0
votes
1answer
183 views

I am not getting correct currency converstion

Please can someone kindly aid me with correct solution. The question ask: If EUR 100 were used to purchase British Pounds in Year 1, what would be their approximate value if they were kept for a ...
0
votes
1answer
71 views

Have I correctly used currency conversion

Please can you help me with this question? I think I have the right answer but I want to make sure. The question asks: JPY 1,000 in Year 1 is worth how many US dollars in Year 1? Assume Value ...
1
vote
2answers
141 views

how seconds per year does the average worker work?

Approximately how many seconds per year does the average 18 – 21 year women factory worker work? Choices are... A] 2,526 B] 80208 C] 5700 D] 3,443 E] 3958 assuming Accident per person per year is ...
1
vote
1answer
298 views

not getting the right proportion

I got this answer wrong. I thought it was 55% but it seems the answer is different. Please can you have a look at this and tell me where have I gone wrong and it should be. Thanks in advance. Q) ...
0
votes
0answers
367 views

best revenue to Costs ratio

Would you say for best revenue to costs ratio would be D as cost is 0.4. Thanks in advance for your help. A) 109 (Sales Revenue) : 141 (Cost) = 0.77 B) 533 (Sales Revenue) : 307.92 (Cost) = 1.73 ...
3
votes
2answers
646 views

Maximizing a function containing an integral

Problem. Let $\rho\colon[-1,\infty)\to\mathbb{R}$ be a function such that $$\int_{-1}^\infty\rho(x)\,dx=1.$$ Let $G\colon[0,1]\to\mathbb{R}$ be a function that is defined with $$G(f) := ...
0
votes
1answer
47 views

Do I need to calculate the payments of revenue earned as well, for present value?

A service bureau is considering renting a computer for $24$ months at $\$15,000$ per month. The first $11$ months will be required to test software for the particular application to be offered by ...
2
votes
6answers
601 views

How to solve this problem without the assistance of a calculator in under 3 minutes?

I have 3 minutes to solve questions like these: Someone invested $\$2,000$ in a fund with an interest rate of $1\%$ a month for $24$ months. Consider it to be compounded interest. What will be the ...
0
votes
2answers
169 views

Pension calculation

I have very difficult problem (for me) I have to create a pension calculator. What I know is: I am now 30 years old, will stop paying as I am 60 (so I will pay over 30 years) and I will live ...
1
vote
1answer
69 views

Showing concavity of a function defined in terms of expectancy of another function

Suppose $ U : \mathbb{R} \to \mathbb{R} $ is concave, and that the random variable $ \epsilon $ has zero mean. Assuming that the function $ \phi : \mathbb{R} \to \mathbb{R} $, defined by $ ...
3
votes
4answers
20k views

What is the reasoning for the Discount Factor formula?

I've previously come across dicount factors in my high school education but we had formula sheets so I never bothered actually learning it. In my university I have a business class in which we are now ...
0
votes
1answer
156 views

Calculate present value for a recurring income

Say I have a recurring annual income of "i", it is annually readjusted by the interest of "r". The discount rate is "d". What is the formula to get the net present value assuming this income never ...
1
vote
2answers
98 views

Calculate breakeven when fixed revenue being added per month v/s cost

I am writing up a cost sheet for a product and I basically suck at math. Didn't know who else to turn to, so trying out Math exchange. So, I am planning to spend ...
2
votes
2answers
444 views

Baseball betting and probablity

Here is a question that came up during class discussions on Friday: Your favorite baseball team is playing against your uncle's favorite team in the World Series. At the beginning of each game, you ...
1
vote
2answers
13k views

Formula for calculating the total interest payable over the life of a loan

wondering if someone can help a non-mathematician out. I am looking for the formula for calculating the total interest payable over the life of a loan. Given that we know: ...
1
vote
1answer
331 views

Check my math - Compound Interest

I recently calculated how long it would take to pay off a loan, and I would like to have someone check my math to make sure I'm doing it right. I used the formula below: (i = APR/12, b = total ...
4
votes
1answer
381 views

Applications of Compound Poisson Processes

I'm reading the book Non-Life Insurance Mathematics, an introduction with Stochastic Processes by Thomas Mikosch and I'm interested in applications of the Cramer-Lundberg Process to concrete examples ...
1
vote
1answer
47 views

Acquisition + Rent payment calculations

I was reading some documentation which had an example scenario. In the scenario, they gave the following details ...
0
votes
1answer
4k views

Financial Calculator HP 10bII - Standard Deviation with Probability

I have a financial calculator and am trying to use it to calculate the standard deviation when probability is involved. For a standard deviation question say on the numbers 1, 5, 6, 10 ...
0
votes
1answer
2k views

XIRR and Interest Rate Calculation

I am having trouble reconciling the XIRR function in Excel with real world amortization schedules. I have narrowed down the issue to a really simple example. ...
0
votes
1answer
106 views

How to calculate Anniversary Billing for Uneven time frames?

What is the best way to calculate anniversary billing monthly with different lengths We want to charge for storage say starting June 1st to July 1st and if the customer stays longer than July 1st we ...
4
votes
1answer
162 views

How can I calculate what my credit card balance will be next month?

If my current credit card balance in July is \$1,000 USD, my credit card's APY is 20% and this month I made a payment for \$100 on time (to avoid late fees)... What will my balance be in August? I ...
7
votes
1answer
527 views

The so-called rule of 72 (or rather, 69)

This BBC article discusses the 'rule of 72' - essentially along the lines that questions to do with economic growth and inflation and so forth can be approximated by a simple formula using the number ...
2
votes
1answer
518 views

Statistics with overlapping periods

I've been having a lot of discussions about finance recently in which people will point to some results using overlapping time periods and claim a high degree of statistical significance. For ...
0
votes
1answer
133 views

Compound interest

I've watched the khan academy pre-calculus playlist about compound interest and constant e on youtube Khan Academy. First he said that you can compute the final payment like this: Let P = Principal, ...
2
votes
2answers
177 views

Bonds and Yield Rate

I came across the following problem on bonds: Suppose we are given the following term structure of annual effective yield rates for zero coupon bonds: $(1, 2 \%)$, $(2, 6 \%)$, $(3, 7 \%)$, and ...
1
vote
2answers
265 views

Problem calculating percentage compound interest

I have two problems: 1. How can i calculate compound interest when i want to reinvest a percentage of the sum of my principal and interest periodically? To make it clearer, Usually i use this ...
3
votes
2answers
431 views

Put Options and Arbitrage

I came across the following problem on put options: A European put with strike price $100$ expiring in $1$ year has premium $ \$ 1$ and a European put with strike price $K$ expiring in $1$ year ...
3
votes
1answer
614 views

What is the definition of a “predictable process”?

I am reading a book on financial mathematics, and frequently encounter the phrase "predictable process", which I haven't seen definition of, and cannot find the definition online. At first I thought ...
2
votes
2answers
135 views

Solve for level payment with a twist

Reworded trying to clarify. Also corrected example to correctly state 4 years and 150 days. I'm struggling with how to solve for a level withdrawal that will reduce a starting balance amount to zero ...
1
vote
1answer
197 views

Binomial model of stock price

I've got a homework question which I think I have solved but am not certain if the answers are correct. The question goes like this: Consider a stock which has a 50% chance of increasing by 80% by the ...
0
votes
1answer
1k views

Money-Weighted and Time-Weighted Rate of Return

I have a question on Time-Weighted Rate of Return (TWRR) and then a question on the links between MWRR and TWRR, An investor invested £100 in a fund on Jan 1st 1998 and another £100 on Jan 1st 1999. ...
0
votes
2answers
1k views

what is running yield?

Suppose an investor who pays £120 on 15 July 2007 for £100 nominal of a six-year stock with half-yearly coupon payments of 13% pa and is not subject to tax. The stock is redeemable at par. Calculate ...
3
votes
2answers
744 views

APR Calculation

I'm hoping someone can clarify this for me. The model/example is this: We lend an amount of 1498.50 (loan amount). Other fees total 39.95. The term of the loan is for 12 months. There is no ...
10
votes
1answer
365 views

A (mathematically) sound investment strategy

It is common wisdom in the investment community that a long-term investor saving for his future would do well to invest in high-risk/high-return assets when he is young, slowly switching his portfolio ...
1
vote
2answers
212 views

Find principal borrowable given monetary deposit, term and monthly payment. With a catch

Edit: I reworded the entire question into an example to make it easier to understand John wants to buy a house. He has €30,000 saved up for a deposit $(D)$ and he know's he can afford to pay €1,200 a ...
0
votes
2answers
219 views

What is wrong with this simple equation?

Consider the following equation: $$\Bigl(\bigl((100 + 5 - 2) * 1.15 + 6\bigr) * (1.07) - 3\Bigr) = 130.1615.$$ I want to take the above and add 3% non-compounded, meaning I want to take 3% of 100 and ...
0
votes
1answer
550 views

recurrence relation on bank interest

Invest 1000 dollars at bank at 3 percent interest compound annually. Every year the bank deducts 15 dollars in charges. If $A_n$ is the value of the investment at the end of $n$ years write down a ...
3
votes
0answers
143 views

Algorithm/Formula to compute adding and/or removing compound and/or non-compound percentages from a value?

I will first start with a scenario, I have to apply some adjustments to a particular value. These adjustments are either compound or non-compounded and they can either be added or subtracted to the ...
0
votes
1answer
147 views

Optimizing Group Spending

I have always thought that groups of individuals that spend more money(as opposed to save) have more money in the long run. My reasoning is that if a particular group spends money, then each dollar ...
2
votes
2answers
450 views

Using Black-Scholes Equation to “buy” stocks

From what I understand, Black-Scholes equation in finance is used to price options which are a contract between a potential buyer and a seller. Can I use this mathematical framework to "buy" a stock? ...