Finance for Qualitative Thinkers: How to Use Logical Math Intelligence in Financial Problem Solving

By Cornelius Cash

Financial management is a difficult subject for qualitative thinkers. College students interested in pursuing a professional career in business disciplines such as HR or Marketing tend to be more interested in the qualitative side. However, the language of business is finance and business students are required to take one or more finance courses in their educational curriculums. This book will show through demonstrations how to apply basic logical math intelligence (LMI) in solving finance problems.
Finance for Qualitative Thinkers: How to Use Logical Math Intelligence (LMI) in Financial Problem Solving demonstrates, from a practitioner's perspective, how to effectively use basic math skills to solve financial problems. It presents a model for solving any financial problem by applying basic Logical Math Intelligence. Using a technique called the "line method" introduced in this publication, makes finding the solution to financial problems simple and easy to understand. This book is application based and highly focused on applied problem solving visually demonstrating how calculations are performed. It does not extensively emphasize underlying theoretical concepts found in traditional textbooks.

• Language: English
• Publisher: BookBaby
• Release date: Jul 13, 2021
• ISBN: 9781098375959

Book preview

Chapter 1:

Introduction

Logical Math Intelligence (LMI) is the foundation of quantitative problem solving. Everyday people unconsciously use LMI when making basic financial decisions. Daily activities associated with personal purchasing decisions, such as purchasing grocery or choosing an internet service provider (ISP) requires the use of LMI. In the business world LMI is consistently applied in both for-profit, as well as non-profit sectors. Business colleges and universities place a high premium on faculty and staff who are able to effectively apply LMI in logically analyzing problems, complete operations in math, and utilize quantitative tools in exploring scientific issues. This document will explore the effective use of LMI in the discipline of Finance. Specifically addressed in this publication will be: finance as a system of formulas, using the line-method to connect numbers to variables, transforming the formula to an equation, using the order of operation (PEMDAS) to solve the equation, and arriving at results of the analysis.

What is Logical Math Intelligence?

People engage in the exercise of logical math intelligence (LMI) every day without knowing it. When a person makes a programmed decision to re-purchase a household item of their preference such as a specific washing detergent, brand of mouthwash, or food product they engage in LMI using what Kerin, Hartley, & Rudelius (2015) calls a best value strategy (p.326). Logical mathematical intelligence is related to common sense reasoning, thinking in an objective and calculated manner, exercising basic logic inherent in dealing with every day issues that are often repetitive, applying critical thinking tools in problem resolution, and sometimes utilizing higher level thinking or abstract thinking which are often related to applied mathematics. Everyone use LMI to understand systems and patterns without consciously understanding the role it plays in making programmed or routine decisions. It is interesting to note that people who are not objective thinkers feel they are not competent in quantitative evaluation yet they use LMI in everyday financial decision making. This is not to say that individuals who gravitate toward careers that highly emphasize quantitative analysis such as statistics, finance, accounting, and operations management do not have a higher level of LMI than the average person. The point being made in this argument is that everyone has a basic level of LMI cultivated during childhood and adolescent stages of human development.

People who enjoy science and mathematics have highly evolved levels of LMI and often excel in careers in science, math, engineering accounting and computer technology. Such individuals enjoy the challenge of solving mathematical problems and seek to share these skills with individuals with the same passion.  As a teacher and mentor who enjoy teaching advanced LMI skills to my students, I have found that there are very few students in the quantitative courses I teach with a passion to elevate their LMI skill set. Most college students are only interested in learning just enough to successfully complete their quantitative based classes as required in core business degree requirements. Business and science students taking classes that require a high level of LMI find themselves operating outside of their comfort zone. This can possibly be associated with their learning style which is more psychological than practical. Students with advanced LMI classify data they encounter into groups and systemically organize information in a structured manner that can be replicated by others. In a similar sense, they like to follow specific procedures and sets of rules in the problem-solving process.

Applying LMI techniques to Financial Problem Solving

At its core, finance is a system of formulas that are used in the problem-solving process. Finance only requires a basic understanding of LMI to competently analyze and solve financial problems. In this section the author will present a simplified process for analyzing and solving financial problems. The basic LMI skills used in making a straight repurchase decision can be effectively used in solving financial problems. This statement may sound surprising therefore the writer will present the methodology that is applied in the examples that follow.

Financial Management Basics & LMI

Financial Management is a quantitative discipline exchange or bartering using money as the primary medium. The application of LMI is required in financial problem solving. In addition, it requires an understanding of the variables that are used in the different formulas selected in the analysis process. For example, when using time value of money formulas, there are four distinct variables that must be assessed in the process of finding a solution to a given problem. However, when calculating the intrinsic value of a share of stock selling in the secondary financial markets or valuing a bond after an announced change in market interest rates by the U.S. Federal Reserve Bank, the variables in the valuation models are different. Even when using the various formulas that comprise financial analysis, the synonymous variables may be written using different letters or formats based on the author’s personal selection. Over the many years I have been privileged to teach Finance at both graduate and undergraduate levels, I have encountered various expressions of the same formulas which can be very confusing to students, who are strong in the area of qualitative thinking but do not gravitate towards math based courses. This affinity to math creates a psychological barrier which facilitates negative cognition on the part of the receiver. Qualitative thinkers tend to forget the basic skills they learned in the past and thereby put up a mental shield that adversely affect the basic LMI skills they learned in grammar school. In other words, students who are familiar with a formula written in one textbook may find the same formula, written differently, unfamiliar in another text. The inconsistency in the way formulas are written in Finance can be confusing to qualitative thinkers and novice finance