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Anyone who has read "An Undergraduate Introduction to Financial Mathematics" please help me.

Andy Xu

Joined
2/14/12
Messages
27
Points
13
I start to read this book by J Robert Buchanan (the 2005 version) as it is recommended in the reading list here and it is not so thick as the others. However, a huge doubt has been troubling me ever since I read the first few pages of it.

In the section about inflation and saving for retirement, the author wrote that for interest rate rs and inflation rate ri, the deposit and the anuity payment should be discounted at a rate of rs+ri and rs-ri respectively. I have two serious questions about that.
  • Why do we treat the discount of the deposit and anuity payment as two completely different things? In my oppinion, they are exactly the same in terms of calculating the present value of a certain future value, so there can not possibly be two different rates rs+ri and rs-ri.
  • Even if there does exist two different rates, can we simply use rs+ri or rs-ri to characterize them? Calculating the real interest rate like this obviously contradicts with the Fisher equation.
In fact, when I search the internet for help, I found the book's web page (see http://banach.millersville.edu/~bob/book/). To my great surprise, the couseware on this website has a totally different way of calculating the real interest rate, the Fisher equation way, and thus leading to a different result. This fact has seriously weakened my determination to continue reading, as I am not sure whether I will be encountering these contradictions again somewhere else.

Could anyone please comment on this book? Is there something wrong only with the 2005 version? If not, I highly suggest that it shoud be removed from the recommended reading list.
 
In addition, I have come across many misleading (although not critical) typos in the first 15 pages alone, which has significantly discredited the students who "found numerous typographical errors in the draft version" as was told in preface. I had a really hard time imagining what the lengendary draft version is like.
 
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