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Published on: June 24, 2016
Isaac Newton and compound interest.
1Institute and Faculty of Actuaries , London, London, UK.
Summary
Isaac Newton explored compound interest for property lease calculations. His work validated financial tables, though later controversies arose regarding lease valuation methods.
Area of Science:
- Financial Mathematics
- History of Science
- Actuarial Science
Background:
- Isaac Newton's lesser-known work extended to financial mathematics, specifically compound interest.
- His calculations concerned property lease purchases and renewals, considering fixed terms or life contingencies.
Purpose of the Study:
- To contextualize Newton's financial work within his era.
- To detail his contributions to compound interest applications in lease valuation.
- To examine the legacy and controversies surrounding his methods.
Main Methods:
- Historical analysis of Newton's financial writings and contemporary documents.
- Examination of George Mabbut's compound interest tables and Newton's certification.
- Review of post-Newton controversies regarding life-lease valuations.
Main Results:
- Newton certified the accuracy of Mabbut's compound interest tables for lease transactions.
- These tables were widely adopted for over 70 years.
- A debate emerged after Newton's death concerning life-contingent lease valuation methods.
Conclusions:
- Newton's involvement in lease valuation was significant but potentially limited in scope.
- His work laid groundwork but did not fully address life-contingent valuation complexities.
- Further questions remain regarding the extent and impact of his financial calculations.
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