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Mathematica Applications for Introductory Finance Courses

Fiona Maclachlan
Organization: Manhattan College
Department: Economics & Finance
URL: http://home.manhattan.edu/~fiona.maclachlan/

2005 Wolfram Technology Conference
Conference location

Champaign IL

Mathematica is recognized as an important tool for advanced financial analysis but for introductory finance courses, financial calculators and spreadsheet programs are generally deemed sufficient. Given Mathematica’s reputed difficulty for new users, it might seem that for an introductory course, the learning costs would outweigh the benefits. In this presentation, I aim to show the opposite is true.

Through drawing on some courseware that I’m developing, I first demonstrate that students do not need extensive knowledge of Mathematica to decipher and modify the simple code that can capture most of the basic financial functions.

Next, I argue that the Mathematica code has a transparency that one loses with a financial calculator or the built-in financial functions of a spreadsheet program. Finance educators often argue about the extent to which beginning students should be using financial calculators. One side argues that the computer tools allow students to work more rapidly through many different problems without doing the type of tedious calculations that they will never encounter in the work world. But traditionalists argue that students will be deprived of a level of understanding that can be gained when the calculations are done by writing out mathematical formulas. They argue that advanced courses will require a deeper understanding of the mechanics of the calculations. I show that with Mathematica both sides can be appeased: the code reveals as much as mathematical formulas, but the computations can be performed quickly and without tedium.

Finally, I show how Mathematica’s graphical capability can be used to reinforce the students’ understanding of various concepts. Even something quite complicated like the pattern of cash flows from mortgage-backed securities at different rates of prepayment can be made accessible with the use of an animated graphic.

*Business and Economics
*Education > College

5807.zip (1.1 MB) - ZIP archive