Basics on the Theory of Interest: Applications to the Spanish financial market

Abstract

This manuscript is intended for readers who are interested in knowing the basic concepts and mathematical tools that are currently used in financial markets. It is aimed at both university students who will require this knowledge when they start working in these markets and professionals who already work in them. The book comprises four units. Unit 1, Financial transactions and financial regimes, deals with the time value of money as a main idea, as well as other related concepts such as financial capital, financial equivalence, simple and compound interest, annual effective interest rate, etc. Unit 2 is devoted to Annuities. In particular, level or constant annuities and varying annuities, both in geometric and in arithmetic progression are explained. A sound grounding of the first two units is essential to understand Unit 3 and Unit 4 which analyze Loans and Bonds, respectively. The manuscript concludes with some information sources. Practically all the concepts introduced in the book are followed by illustrative examples. On the one hand, academic examples addressed to understand the theoretical foundations are stated. Additionally, the examples are supplemented with real examples taken from the financial market so that the reader can understand their practical and professional application. In this regards, all real applications considered are based on the Spanish financial market. Furthermore, in order to assimilate properly the concepts in each unit, a set of problems to be solved is proposed, alongside a list of the correct answers. The recommended approach for using this book is to read each unit, work on the embedded examples, and then to practice by solving the set of problems.