[seqfan] Re: Futurevalue considered harmful

Hagen von Eitzen math at von-eitzen.de
Sun Aug 16 23:17:29 CEST 2009

franktaw at netscape.net schrieb:
> Incidentally, someone (I've lost track of who) made the comment (I'm 
> paraphrasing) that business analysts aren't very sophisticated 
> mathematically, and might use an expression like futurevalue(x,2,2) 
> without realizing that this is the same as 9*x.  In fact, this is not 
> at all true; these expressions are dealing with MONEY, and it is very 
> important to understand just what an expression means.  And any 
> business analyst certainly knows that futurevalue(x,y,z) = x*(1+y)^z, 
> and can evaluate (1+2)^2.  (In fact, the first thing our hypothetical 
> business analyst is going to do on seeing "futurevalue" is to 
> investigate the definition to see whether it is x*(1+y)^z or 
> x*(1+y/100)^z; he or she would probably prefer the latter.)
As a matter of fact (and unfortunately so), I have sometimes made the 
that any knowledge learned by bank personnel about formulas for futurevalue
evaporates extremely quickly and folks merely know where to enter values 
their computer forms to obtain a result.
(As a mathematician, I suffer from the back side of the medal: I don't 
trust any
fancy function names existing in spreadsheet software nor do I check 
which of them
corresponds to, say, monthly rates due at the end of a month with 
interest compounded
per quarter and fees added per year ... it's always faster and more 
comforting to
simulate the account step by step.)

Indeed, I even once complained to a software producer (shouldn't they 
know the math
behind what they implement?) that their program could not calculate compound
interest correctly:
Me: "If I enter 1000$ at 10% per annum at 10 years, your program outputs 
That's obviously wrong, isn't it? Apparently there's no *compund* interest."
Support (only slightly paraphrased): "Why? How could anybody know? If I 
type in
your figures, I get 1100$, too. I don't see any problem."
Admittedly, this may be based on some awfully biased experience.
But I'd really be shocked if a business analyst actually contemplated:
"Say, I have an amount of x and put it on a savings account with 200% 
interest - what do
I have after 2 years?  If x=1$? 9$. If x=2? 18$. If x=3? 27$ ... "
Failing at *this* level (e.g. not realizing that the result depends 
linearly on x, not to mention
the unrealistic interest rate) would hardly fall under the category 
"aren't very sophisticated
mathematically" - this is more like  practically beyond imagination.
*If* such failing were common, it might lead to a global financial 
collapse - oh, wait a minute ... ;)


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