Risk and Returns Calculations Impact of Mathematics in Finance Essay

Risk and Returns Calculations Impact of Mathematics in Finance - Essay Example Financial calculations and theories are not complete and effective unless they are linked with Mathematical concepts. Indeed there has been a great impact of mathematics in the financial stream. The mathematical concepts has enable the business doing individuals take more effective decisions related to financing, investments, capital budgeting and so on. Moreover, an investment decision calls for a Ã' areful evaluation of available alternatives, assessing of the reward and risk associated with each of the alternatives that are believed to best serve the investment objectives at hand.For instance, while making the decisions regarding investment and financing, the finance managers seek to achieve the right balance between risk and return.If the firm borrows heavily to finance its operations, then the surpluses generated out of operations would be sufficient to service the debt in the form of interest and principal payments.The surplus or profit available to the owners would be reduced because of the heavy ‘Debt – servicing’. If things do not work out as planned and the firm is unable to meet its obligations, the company is even exposed to the risk of insolvency. Similarly the various investment opportunities have a certain amount of risk associated with the return and also the time when the return would materialize.The Finance manager has to decide whether the opportunity is worth more than its cost, and whether the additional burden of debt can be safely borne