Financial Maths

Gözde Ünal
Boğaziçi Üniversitesi
Introduction
Three main decision making areas in
Financial Management
 Capital Budgeting

Which invesment opportunities to

undertake, cost and benefit
analyses
 Capital Structure

Long term debt and capital

funding decisions
 Working Capital Management

Current assets and current liability

management, mainly daily issues

Financial Mathematics is a must in all

these decision making processes.
First Principle in Finance
Time Value of Money
Would you rather 10,000 TL today or next year?

 Change TL with any currency you like...

 Principle applies everywhere
 or used to apply everywhere???
 Interest earning capability of money is the
reason behind this principle.
 Under positive interest assumption, future
value of money is more than its present value.
Interest Rate
Interest is the «rent of money».
 When you lend your money, the money you receive in addition to the
principal is called the interest.
 Interest can be considered as the price to lend your principal for a
while.
 Interest as a price, is function of time and risk carried.
 Interest =f(t, σ)
 The longer is the time and higher is the risk, rental for money will be
increasing.
 Interest rates also hold a premium for the expected inflation.
 Nominal interest: Current interest rate in the financial markets
The interest rate that is not adjusted against purchasing power loss
of money
 Real Interest Rate: Interest rate that is free from inflation
The interest rate that is away from inflation with a simple
mathematical formula.
Nominal Interest vs Real Interest
 Real interest rate has been adjusted to remove the effects
of inflation to reflect the real cost of funds to the borrower,
and the real yield to the lender

 For example, if you invest in a deposit account that pays 50%

interest annually, it is the rate you would receive after a year.
 If the inflation that year turns out to be 50%, you only get
compensated for purchasing power you lost.
 Your real gain is zero. In other words, the real interest rate is zero.

 Real interest rate formula:

1  Nominal Interest
1  Real Interest 
1  inflation
Example
Case I
 T-bill rate=95%
 Expected inflation=52%

What is the real interest rate?

Real Interest=1,95/1,52 – 1= 28,3%
~95%-51%=44%

Case II
 T-Bill rate=9,5%
 Expected inflation=5,2%

What is the real interest rate?

Real Interest=1,095/1,052 – 1= 4,1%
~9,5-5,1=4,4%
 The formula for calculating compound interest is:

Simple Interest vs Compounded Interest

Simple Interest
 Interest= Principal x time x interest rate

Compounded Interest
Compound Interest = Total amount of Principal and
Interest in future (or Future Value) less Principal amount
at present (or Present Value)
= [P (1 + i)n] – P= P[(1 + i)n – 1]

where P = Principal, i = annual interest rate in percentage

terms, and n = number of compounding periods.
Present Value (PV) and Future Value(FV)
 FV = Future value of money
 PV = Present value of money
 i = interest rate
 n = number of compounding periods per year
 t = number of years

Based on these variables, the formula for TVM is:

 PV= FV / (1 + (i / n)) ^ (n x t)

 FV = PV x (1 + (i / n)) ^ (n x t)
Net Present Value(NPV)
 Present Value less initial investment amount
 NPV>0 invest
 NPV<0 donot invest
Formula
Annuity
 Annuity consent is used for stream of fixed
payments at fixed intervals.
 Annuity payments are generally assumed to be
at the end of the period.
 Annuity formula are used in insurance and
retirement calculations and loan agreements.
Annuity Formula

PV: Present Value

FV: Future Value
C: Annuity Payment
k: interest rate
n: number of periods
Example I
60% is the interest rate. 100,000 TL bank
loan to be paid in four years. What are the
annual year-end payments?
Example II

 Ahmet is about to start school next year. Ahmet’s

mom and dad wants to accumulate 10,000TL for
next year. How much do they have to save every
month and accumulate in a bank deposit account?
 Ahmet’s parents prefer a monthly compounding
deposit and the interest rate after tax is 3%.
 Then, 10,000 TL is the future value of 12 period
annuity with 3% interest rate.
Perpetuity

•This simple formula is used in financial

valuation.
• Here you assume a fixed stream of cash
payments to be repeated forever.
Growing Annuity

When the annuity payment is not fixed but growing at a rate like g%...

PV=
Gordon Growth Model
Bond Valuation
More resources
 Financial Math books
 Sadi Uzunoğlu
 Supi Apak
 Corporate Finance books

 Excel Training videos

 http://excelexperts.com
 http://
www.youtube.com/watch?v=GsZRJmDcDbY
 https://www.bionicturtle.com/
Excel
m Anapara + Faiz
1 2 1,1 Faiz 10%
2 2,25 1,1025
4 2,441406 1,103813
12 2,613035 1,104713
52 2,692597 1,105065 e^faiz 1,105171
104 2,705327 1,105118
1000 2,716924 1,105165
10000 2,718146 1,10517
100000 2,718268 1,105171
1000000 2,71828 1,105171
10000000 2,718282 1,105171
1E+08 2,718282 1,105171
Continuous compounding
Continuous Compounding
 3000$ , 12% annual rate, 9 months

 Effective Annual Rate(EAR) = (er - 1) = e0.12 - 1 =

0.1275 (12.75%)
in 9 months= $3000(e)0.12*9/12 = $3,282.53
 FVF
Future Value Factor

n
FVF = (1+i)

Period Discount Rate (i)

(n) 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 10.00% 12.00% 15.00%
1 1.01000 1.01500 1.02000 1.02500 1.03000 1.03500 1.04000 1.04500 1.05000 1.10000 1.12000 1.15000
2 1.02010 1.03023 1.04040 1.05063 1.06090 1.07123 1.08160 1.09203 1.10250 1.21000 1.25440 1.32250
3 1.03030 1.04568 1.06121 1.07689 1.09273 1.10872 1.12486 1.14117 1.15763 1.33100 1.40493 1.52088
4 1.04060 1.06136 1.08243 1.10381 1.12551 1.14752 1.16986 1.19252 1.21551 1.46410 1.57352 1.74901
5 1.05101 1.07728 1.10408 1.13141 1.15927 1.18769 1.21665 1.24618 1.27628 1.61051 1.76234 2.01136
6 1.06152 1.09344 1.12616 1.15969 1.19405 1.22926 1.26532 1.30226 1.34010 1.77156 1.97382 2.31306
7 1.07214 1.10984 1.14869 1.18869 1.22987 1.27228 1.31593 1.36086 1.40710 1.94872 2.21068 2.66002
8 1.08286 1.12649 1.17166 1.21840 1.26677 1.31681 1.36857 1.42210 1.47746 2.14359 2.47596 3.05902
9 1.09369 1.14339 1.19509 1.24886 1.30477 1.36290 1.42331 1.48610 1.55133 2.35795 2.77308 3.51788
10 1.10462 1.16054 1.21899 1.28008 1.34392 1.41060 1.48024 1.55297 1.62889 2.59374 3.10585 4.04556
11 1.11567 1.17795 1.24337 1.31209 1.38423 1.45997 1.53945 1.62285 1.71034 2.85312 3.47855 4.65239
12 1.12683 1.19562 1.26824 1.34489 1.42576 1.51107 1.60103 1.69588 1.79586 3.13843 3.89598 5.35025
13 1.13809 1.21355 1.29361 1.37851 1.46853 1.56396 1.66507 1.77220 1.88565 3.45227 4.36349 6.15279
14 1.14947 1.23176 1.31948 1.41297 1.51259 1.61869 1.73168 1.85194 1.97993 3.79750 4.88711 7.07571
15 1.16097 1.25023 1.34587 1.44830 1.55797 1.67535 1.80094 1.93528 2.07893 4.17725 5.47357 8.13706
16 1.17258 1.26899 1.37279 1.48451 1.60471 1.73399 1.87298 2.02237 2.18287 4.59497 6.13039 9.35762
17 1.18430 1.28802 1.40024 1.52162 1.65285 1.79468 1.94790 2.11338 2.29202 5.05447 6.86604 10.7613
18 1.19615 1.30734 1.42825 1.55966 1.70243 1.85749 2.02582 2.20848 2.40662 5.55992 7.68997 12.3755
19 1.20811 1.32695 1.45681 1.59865 1.75351 1.92250 2.10685 2.30786 2.52695 6.11591 8.61276 14.2318
20 1.22019 1.34686 1.48595 1.63862 1.80611 1.98979 2.19112 2.41171 2.65330 6.72750 9.64629 16.3665
21 1.23239 1.36706 1.51567 1.67958 1.86029 2.05943 2.27877 2.52024 2.78596 7.40025 10.8038 18.8215
22 1.24472 1.38756 1.54598 1.72157 1.91610 2.13151 2.36992 2.63365 2.92526 8.14027 12.1003 21.6447
23 1.25716 1.40838 1.57690 1.76461 1.97359 2.20611 2.46472 2.75217 3.07152 8.95430 13.5523 24.8915
24 1.26973 1.42950 1.60844 1.80873 2.03279 2.28333 2.56330 2.87601 3.22510 9.84973 15.1786 28.6252
36 1.43077 1.70914 2.03989 2.43254 2.89828 3.45027 4.10393 4.87738 5.79182 30.9127 59.1356 153.152
48 1.61223 2.04348 2.58707 3.27149 4.13225 5.21359 6.57053 8.27146 10.4013 97.0172 230.391 819.401
60 1.81670 2.44322 3.28103 4.39979 5.89160 7.87809 10.5196 14.0274 18.6792 304.482 897.597 4383.999
120 3.30039 5.96932 10.7652 19.3581 34.7110 62.0643 110.663 196.768 348.912 92709.07 805680.26 19219445.00
 Present Value Factor
Present Value Factor

1
PVF
Period
(1  i) n
Discount Rate (i)
(n) 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 10.00% 12.00% 15.00%
1 0.99010 0.98522 0.98039 0.97561 0.97087 0.96618 0.96154 0.95694 0.95238 0.90909 0.89286 0.86957
2 0.98030 0.97066 0.96117 0.95181 0.94260 0.93351 0.92456 0.91573 0.90703 0.82645 0.79719 0.75614
3 0.97059 0.95632 0.94232 0.92860 0.91514 0.90194 0.88900 0.87630 0.86384 0.75131 0.71178 0.65752
4 0.96098 0.94218 0.92385 0.90595 0.88849 0.87144 0.85480 0.83856 0.82270 0.68301 0.63552 0.57175
5 0.95147 0.92826 0.90573 0.88385 0.86261 0.84197 0.82193 0.80245 0.78353 0.62092 0.56743 0.49718
6 0.94205 0.91454 0.88797 0.86230 0.83748 0.81350 0.79031 0.76790 0.74622 0.56447 0.50663 0.43233
7 0.93272 0.90103 0.87056 0.84127 0.81309 0.78599 0.75992 0.73483 0.71068 0.51316 0.45235 0.37594
8 0.92348 0.88771 0.85349 0.82075 0.78941 0.75941 0.73069 0.70319 0.67684 0.46651 0.40388 0.32690
9 0.91434 0.87459 0.83676 0.80073 0.76642 0.73373 0.70259 0.67290 0.64461 0.42410 0.36061 0.28426
10 0.90529 0.86167 0.82035 0.78120 0.74409 0.70892 0.67556 0.64393 0.61391 0.38554 0.32197 0.24718
11 0.89632 0.84893 0.80426 0.76214 0.72242 0.68495 0.64958 0.61620 0.58468 0.35049 0.28748 0.21494
12 0.88745 0.83639 0.78849 0.74356 0.70138 0.66178 0.62460 0.58966 0.55684 0.31863 0.25668 0.18691
13 0.87866 0.82403 0.77303 0.72542 0.68095 0.63940 0.60057 0.56427 0.53032 0.28966 0.22917 0.16253
14 0.86996 0.81185 0.75788 0.70773 0.66112 0.61778 0.57748 0.53997 0.50507 0.26333 0.20462 0.14133
15 0.86135 0.79985 0.74301 0.69047 0.64186 0.59689 0.55526 0.51672 0.48102 0.23939 0.18270 0.12289
16 0.85282 0.78803 0.72845 0.67362 0.62317 0.57671 0.53391 0.49447 0.45811 0.21763 0.16312 0.10686
17 0.84438 0.77639 0.71416 0.65720 0.60502 0.55720 0.51337 0.47318 0.43630 0.19784 0.14564 0.09293
18 0.83602 0.76491 0.70016 0.64117 0.58739 0.53836 0.49363 0.45280 0.41552 0.17986 0.13004 0.08081
19 0.82774 0.75361 0.68643 0.62553 0.57029 0.52016 0.47464 0.43330 0.39573 0.16351 0.11611 0.07027
20 0.81954 0.74247 0.67297 0.61027 0.55368 0.50257 0.45639 0.41464 0.37689 0.14864 0.10367 0.06110
21 0.81143 0.73150 0.65978 0.59539 0.53755 0.48557 0.43883 0.39679 0.35894 0.13513 0.09256 0.05313
22 0.80340 0.72069 0.64684 0.58086 0.52189 0.46915 0.42196 0.37970 0.34185 0.12285 0.08264 0.04620
23 0.79544 0.71004 0.63416 0.56670 0.50669 0.45329 0.40573 0.36335 0.32557 0.11168 0.07379 0.04017
24 0.78757 0.69954 0.62172 0.55288 0.49193 0.43796 0.39012 0.34770 0.31007 0.10153 0.06588 0.03493
36 0.69892 0.58509 0.49022 0.41109 0.34503 0.28983 0.24367 0.20503 0.17266 0.03235 0.01691 0.00653
48 0.62026 0.48936 0.38654 0.30567 0.24200 0.19181 0.15219 0.12090 0.09614 0.01031 0.00434 0.00122
60 0.55045 0.40930 0.30478 0.22728 0.16973 0.12693 0.09506 0.07129 0.05354 0.00328 0.00111 0.00023
120 0.30299 0.16752 0.09289 0.05166 0.02881 0.01611 0.00904 0.00508 0.00287 0.00001 0.00000 0.00000
Gelecek Değer Annüite Faktörü
GELECEK DEĞER ANNÜİTE FAKTÖRÜ (GDAF) EK - C

(1  i ) n  1
GDAF 
i
Dönem İskonto Oranları (i)
(n) 1,00% 1,50% 2,00% 2,50% 3,00% 3,50% 4,00% 4,50% 5,00% 10,00% 12,00% 15,00%
1 1,00000 1,00000 1,00000 1,00000 1,00000 1,00000 1,00000 1,00000 1,00000 1,00000 1,00000 1,00000
2 2,01000 2,01500 2,02000 2,02500 2,03000 2,03500 2,04000 2,04500 2,05000 2,10000 2,12000 2,15000
3 3,03010 3,04522 3,06040 3,07563 3,09090 3,10622 3,12160 3,13703 3,15250 3,31000 3,37440 3,47250
4 4,06040 4,09090 4,12161 4,15252 4,18363 4,21494 4,24646 4,27819 4,31013 4,64100 4,77933 4,99338
5 5,10101 5,15227 5,20404 5,25633 5,30914 5,36247 5,41632 5,47071 5,52563 6,10510 6,35285 6,74238
6 6,15202 6,22955 6,30812 6,38774 6,46841 6,55015 6,63298 6,71689 6,80191 7,71561 8,11519 8,75374
7 7,21354 7,32299 7,43428 7,54743 7,66246 7,77941 7,89829 8,01915 8,14201 9,48717 10,08901 11,06680
8 8,28567 8,43284 8,58297 8,73612 8,89234 9,05169 9,21423 9,38001 9,54911 11,43589 12,29969 13,72682
9 9,36853 9,55933 9,75463 9,95452 10,15911 10,36850 10,58280 10,80211 11,02656 13,57948 14,77566 16,78584
10 10,46221 10,70272 10,94972 11,20338 11,46388 11,73139 12,00611 12,28821 12,57789 15,93742 17,54874 20,30372
11 11,56683 11,86326 12,16872 12,48347 12,80780 13,14199 13,48635 13,84118 14,20679 18,53117 20,65458 24,34928
12 12,68250 13,04121 13,41209 13,79555 14,19203 14,60196 15,02581 15,46403 15,91713 21,38428 24,13313 29,00167
13 13,80933 14,23683 14,68033 15,14044 15,61779 16,11303 16,62684 17,15991 17,71298 24,52271 28,02911 34,35192
14 14,94742 15,45038 15,97394 16,51895 17,08632 17,67699 18,29191 18,93211 19,59863 27,97498 32,39260 40,50471
15 16,09690 16,68214 17,29342 17,93193 18,59891 19,29568 20,02359 20,78405 21,57856 31,77248 37,27971 47,58041
16 17,25786 17,93237 18,63929 19,38022 20,15688 20,97103 21,82453 22,71934 23,65749 35,94973 42,75328 55,71747
17 18,43044 19,20136 20,01207 20,86473 21,76159 22,70502 23,69751 24,74171 25,84037 40,54470 48,88367 65,07509
18 19,61475 20,48938 21,41231 22,38635 23,41444 24,49969 25,64541 26,85508 28,13238 45,59917 55,74971 75,83636
19 20,81090 21,79672 22,84056 23,94601 25,11687 26,35718 27,67123 29,06356 30,53900 51,15909 63,43968 88,21181
20 22,01900 23,12367 24,29737 25,54466 26,87037 28,27968 29,77808 31,37142 33,06595 57,27500 72,05244 102,4436
21 23,23919 24,47052 25,78332 27,18327 28,67649 30,26947 31,96920 33,78314 35,71925 64,00250 81,69874 118,8101
22 24,47159 25,83758 27,29898 28,86286 30,53678 32,32890 34,24797 36,30338 38,50521 71,40275 92,50258 137,6316
23 25,71630 27,22514 28,84496 30,58443 32,45288 34,46041 36,61789 38,93703 41,43048 79,54302 104,6029 159,2764
24 26,97346 28,63352 30,42186 32,34904 34,42647 36,66653 39,08260 41,68920 44,50200 88,49733 118,1552 184,1678
36 43,07688 47,27597 51,99437 57,30141 63,27594 70,00760 77,59831 86,16397 95,83632 299,1268 484,4631 1.014,35
48 61,22261 69,56522 79,35352 90,85958 104,4084 120,3883 139,2632 161,5879 188,0254 960,1723 1.911,59 5.456,00
60 81,66967 96,21465 114,0515 135,9916 163,0534 196,5169 237,9907 289,4980 353,5837 3.034,82 7.471,64 29.219,99
120 230,0387 331,2882 488,2582 734,3260 1.123,700 1.744,695 2.741,564 4.350,404 6.958,240 927.080,69 6.713.993,79 128.129.626,68
 Bugünkü Değer Annuite Faktörü
BUGÜNKÜ DEĞER ANNÜİTE FAKTÖRÜ (GDAF) EK - D
1
1
(1  i ) n
BDAF 
i
Dönem İskonto Oranları (i)
(n) 1,00% 1,50% 2,00% 2,50% 3,00% 3,50% 4,00% 4,50% 5,00% 10,00% 12,00% 60,00%
1 0,99010 0,98522 0,98039 0,97561 0,97087 0,96618 0,96154 0,95694 0,95238 0,90909 0,89286 0,62500
2 1,97040 1,95588 1,94156 1,92742 1,91347 1,89969 1,88609 1,87267 1,85941 1,73554 1,69005 1,01563
3 2,94099 2,91220 2,88388 2,85602 2,82861 2,80164 2,77509 2,74896 2,72325 2,48685 2,40183 1,25977
4 3,90197 3,85438 3,80773 3,76197 3,71710 3,67308 3,62990 3,58753 3,54595 3,16987 3,03735 1,41235
5 4,85343 4,78264 4,71346 4,64583 4,57971 4,51505 4,45182 4,38998 4,32948 3,79079 3,60478 1,50772
6 5,79548 5,69719 5,60143 5,50813 5,41719 5,32855 5,24214 5,15787 5,07569 4,35526 4,11141 1,56733
7 6,72819 6,59821 6,47199 6,34939 6,23028 6,11454 6,00205 5,89270 5,78637 4,86842 4,56376 1,60458
8 7,65168 7,48593 7,32548 7,17014 7,01969 6,87396 6,73274 6,59589 6,46321 5,33493 4,96764 1,62786
9 8,56602 8,36052 8,16224 7,97087 7,78611 7,60769 7,43533 7,26879 7,10782 5,75902 5,32825 1,64241
10 9,47130 9,22218 8,98259 8,75206 8,53020 8,31661 8,11090 7,91272 7,72173 6,14457 5,65022 1,65151
11 10,36763 10,07112 9,78685 9,51421 9,25262 9,00155 8,76048 8,52892 8,30641 6,49506 5,93770 1,65719
12 11,25508 10,90751 10,57534 10,25776 9,95400 9,66333 9,38507 9,11858 8,86325 6,81369 6,19437 1,66075
13 12,13374 11,73153 11,34837 10,98318 10,63496 10,30274 9,98565 9,68285 9,39357 7,10336 6,42355 1,66297
14 13,00370 12,54338 12,10625 11,69091 11,29607 10,92052 10,56312 10,22283 9,89864 7,36669 6,62817 1,66435
15 13,86505 13,34323 12,84926 12,38138 11,93794 11,51741 11,11839 10,73955 10,37966 7,60608 6,81086 1,66522
16 14,71787 14,13126 13,57771 13,05500 12,56110 12,09412 11,65230 11,23402 10,83777 7,82371 6,97399 1,66576
17 15,56225 14,90765 14,29187 13,71220 13,16612 12,65132 12,16567 11,70719 11,27407 8,02155 7,11963 1,66610
18 16,39827 15,67256 14,99203 14,35336 13,75351 13,18968 12,65930 12,15999 11,68959 8,20141 7,24967 1,66631
19 17,22601 16,42617 15,67846 14,97889 14,32380 13,70984 13,13394 12,59329 12,08532 8,36492 7,36578 1,66645
20 18,04555 17,16864 16,35143 15,58916 14,87747 14,21240 13,59033 13,00794 12,46221 8,51356 7,46944 1,66653
21 18,85698 17,90014 17,01121 16,18455 15,41502 14,69797 14,02916 13,40472 12,82115 8,64869 7,56200 1,66658
22 19,66038 18,62082 17,65805 16,76541 15,93692 15,16712 14,45112 13,78442 13,16300 8,77154 7,64465 1,66661
23 20,45582 19,33086 18,29220 17,33211 16,44361 15,62041 14,85684 14,14777 13,48857 8,88322 7,71843 1,66663
24 21,24339 20,03041 18,91393 17,88499 16,93554 16,05837 15,24696 14,49548 13,79864 8,98474 7,78432 1,66665
36 30,10751 27,66068 25,48884 23,55625 21,83225 20,29049 18,90828 17,66604 16,54685 9,67651 8,19241 1,66667
48 37,97396 34,04255 30,67312 27,77315 25,26671 23,09124 21,19513 19,53561 18,07716 9,89693 8,29716 1,66667
60 44,95504 39,38027 34,76089 30,90866 27,67556 24,94473 22,62349 20,63802 18,92929 9,96716 8,32405 1,66667
120 69,70052 55,49845 45,35539 37,93369 32,37302 28,11108 24,77409 22,10929 19,94268 9,99989 8,33332 1,66667
Excel Fonksiyonları
 FV(rate,nper,pmt,[pv],[type])
 PV(rate, nper, pmt, [fv], [type])
 PMT(rate, nper, pv, [fv], [type])
 RATE(nper, pmt, pv, [fv], [type], [guess])
 NPER(rate,pmt,pv,[fv],[type])

Type Ödemeler
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