Mathematics of Finance

Simple Interest

• I = Prt
• I = Interest
• P = Principal
• t = time in year
• r = Simple Interest Rate (Decimal)
• t = time in year

Simple Interest Theorem

• A = P + Prt or A = P(1 + rt)
• A = Amount/Future Value
• P = Principal
• r = simple interest rate
• t = time in years

Compound Interest

• A = P(1 + r/m)^mt
• A = amount/future value
• P= principal
• r = annual rate
• m= number of compounding periods per year
• t = time in years

Continuous Compound Interest

• A = Pe^rt
• A = amount
• e = 2.7183... (button on calculator)
• r = annual rate
• t = time in years

Present Value
i = m/t
n = number of payments

Future Value
i = m/t
n = number of payments