Subject
Financial Mathematics
The arithmetic of payments that arrive at different times, and the decisions it supports. Discounting converts dated amounts to a common date; level and endless streams have closed forms that are the partial sum and the limit of a geometric series. The substance is which summary to act on, since a criterion that requires no discount rate cannot express a preference that depends on one, and the rate at which a project breaks even need not be a single number at all.
Learning paths
Financial Mathematics
Valuing dated payment streams, and choosing the criterion a funding decision actually requires.
What this subject develops
Value a dated stream and choose the decision criterion
Discount a stream of dated payments, apply the closed forms for level and perpetual streams, and rank alternatives by net present value, including the cases where the internal rate of return does not exist, is not unique, or ranks differently.
See detailed outcomes
Value a dated stream and choose the decision criterion
- Given a dated stream of cash flows and a discount rate, the learner can compute its present value, and can apply the annuity and perpetuity closed forms where the stream has their shape.
- Given competing projects, the learner can rank them by net present value at a stated rate, locate the rate at which a ranking reverses, and say when an internal rate of return is not unique or disagrees with net present value.
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