Finance is math

By CryptoMax1387 | Cryptocurrency_World | 12 Mar 2024


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Financial management is not only psychology, magic and esotericism, but also, first of all, math.

Math at the high school level. Most questions about where to invest money will fall away if you understand that you are dealing with mathematical constructs. What are they?

For example, a deposit in a bank is a mathematical construct that is calculated using a simple formula. You know the initial conditions: deposit amount, interest, deposit period and it shows you how much you will get in the end. There's no magic, no hidden variables, no risk (except bank failure). It's all clear!

Bonds are a math object too!!! People write on the internet wondering why the price of bonds is falling. I will not go into the definition of a bond, you will find it yourself. The point is that they are almost like a deposit. The variables are set from the beginning. The only variable added to the calculation is the refinancing rate, which is set by the bank.

The basic premise that will help you make sense of the world of finance is that investment return transactions are calculated by supercomputers. They will equalize the profits from different instruments. They will equalize it.

If the refinancing rate and a deposit in a bank yields 16% per annum and a bond yields 13%. What happens? It should equalize. Like communicating vessels. The deposit is fixed from the current refinancing rate, so the bonds will move, they will start to get cheaper until their purchase is equal to approximately the yield on the deposit in the bank. This is necessary (so it happens) in order not to find smart people who will see this difference and start urgently selling bonds and making deposits in the bank. More precisely, other smart people will get ahead of them.

With stocks it is more complicated, because there is a variable such as the growth or loss of the company. The future is unknown and what will happen to the company too, so stocks are also a mathematical object, but with an unpredictable variable.

You can't beat supercomputers. They won't just let you make profits above the refinancing rate. These machines calculate not only markets, but also real estate, rent... business income. If you calculate the income from renting an apartment, from its value, even taking into account the price increase, you will be very surprised that you will lose out to the income from a deposit in a bank.

Finance is math.

All the best,

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CryptoMax1387
CryptoMax1387

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