ABSTRACT
Chapter 9 presents an introduction into financial mathematics. The topics from engineering economic analysis such as rates of interest, depreciation, discounting, APR, compounding (discrete and continuous), net present value, bonds, annuities, and shrinking funds are presented and explained so that they can be easily understood and used. We also discuss examples using previously covered techniques such as multiattribute decision-making, dynamical systems, and mathematical programming that are applied directly to financial mathematics. In our research on institutions that provided interest, we found none that gave a continuous interest. They all gave interest at discrete intervals. At our local credit union, their sign says money deposited after 10 a.m. will be credited until after 10 a.m. the following day. So, many examples from engineering economic analysis are derived in the discrete model using DDS. Examples for pensions with stock portfolios, financial planning, optimization of interest, and cash flow are discussed using the appropriate mathematical technique.
