The Little Mathematics You Need

Growth rates and factors measure the change of a variable through time. The growth factor is computed by dividing the value of a variable at the end of a period by the value it had at the beginning of the period. Knowing the growth factor and the initial value of a variable, we can identify its future value. The present value of a variable equals its value at the end of the period divided by its growth factor. The growth rate of a financial capital during a period measures its Internal Rate of Return (IRR). When financial capital evolves through several periods because of sequential cash flows of opposite sign, its IRR can be computed only by trial and error.