Math of Money (eBook)

This book reflects one mathematician's view of certain areas of economics and finance. It is not a how-to book, it is not exhaustive or rigorous, and it comes with no guarantee of instant wealth. It tries to maximize the use of the reader's imagination and minimize rote calculation. Although some mathematical background is assumed, ordinary high school algebra will usually suffice. Whenever possible, a verbal rather than a mathematical explanation is given, but where formulas serve a useful purpose they are introduced without derivation or apology. We are primarily concerned with concepts rather than applications, so many topics of practical importance are omitted or papered over-we do not worry about taxes, commissions, and fees and we assume an ideal world in which assets can always be bought at the same price for which they can be sold, and where loans have the same interest rate whether you make them or take them. On the other hand, we sniff out paradoxes and anomalies that chal- lenge our intuition. At the beginning of each chapter we generally pose a few problems that are discussed later in the text. The reader is invited to use his "e;common sense"e; to find solutions to these problems. Those who accept the challenge may find their intuition is at odds with the solution more often than they expect. We hope the solutions surprise the readers and whet their appetites for further exploring. Does this mean that the book is of no practical interest? Not at all.