Permutation

DEFINITION of 'Permutation'

In mathematics, one of several ways of arranging or picking a set of items. The number of permutations possible for arranging a given a set of n numbers is equal to n factorial (n!). So, a set of three numbers can be arranged as: 3x2x1 = 6 permutations. Another type of permutation involves choosing a set of i items out of n choices. In this case, the number of permutations for choosing i items given n choices is given by n!/[(n-i)!]. Permutations are applicable to sets where the order matters; order does not matter in combinations.

BREAKING DOWN 'Permutation'

The study of permutations applies to finance in a broad sense because a good understanding of probability is sometimes necessary to make rational financial choices. The Allais paradox problem shows that on their own, people do not instinctually choose the higher expected financial reward. Given the choice between a sure amount of money and a small gamble with a higher expected value, most people choose the guaranteed amount due to behavioral biases. Financial professionals must be able to rationally evaluate such situations and make the correct choices on behalf of shareholders or clients.

RELATED TERMS
  1. Price Rate Of Change - ROC

    A technical indicator that measures the percentage change between ...
  2. Regulation N

    One of the regulations set forth by the Federal Reserve. Regulation ...
  3. Geometric Mean

    The average of a set of products, the calculation of which is ...
  4. Qstick Indicator

    A technical indicator developed by Tushar Chande to numerically ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal ...
  6. Median

    The middle number in a sorted list of numbers. To determine the ...
Related Articles
  1. Investing

    These 28 Companies Just Became Very Important

    Only 28 companies are driving 50% of U.S. profit, and only one of them has delivered consistently on revenue, net income, and stock appreciation.
  2. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  3. Stock Analysis

    Should You Short These Debt-Laden Stocks? (PBI, FTR)

    These stocks have high debt-to-equity ratios making them prime candidates to short.
  4. Fundamental Analysis

    How Do You Use the Stochastic Oscillator?

    A stochastic oscillator is a technical momentum indicator that compares a security's closing price to its price range over a given time period.
  5. Personal Finance

    Top Healthcare, Medical Equipment Stocks of 2015

    A short list of the top healthcare and medical equipment stocks of 2015.
  6. Investing

    The Effective Annual Interest Rate

    The effective annual interest rate is a way of restating the annual interest rate so that it takes into account the effects of compounding.
  7. Retirement

    Top 10 Stocks for Retirement Portfolios (ADP, PG)

    Certain stocks are popular retirement portfolio options, but not all are as impressive as they used to be. Time to reevaluate?
  8. Stock Analysis

    How the Dow Components Could Point to a Correction

    For the most part, the Dow has been on fire since March 2009. So the profits of its components are growing, right?
  9. Charts & Patterns

    Are These 2015's 10 Best Telecom Stocks?

    Telecom stocks offer generous dividend yields, but it's imperative to make sure those dividends are likely to stay in place.
  10. Stock Analysis

    Use this Trick to Pick the Best Restaurant Stocks

    Investors in the fast food sector should pay attenion to customer service ratings — a good barometer for a company's health.
RELATED FAQS
  1. What is the difference between a president and a chief executive officer? Can there ...

    In general, the chief executive officer (CEO) is thought of as the highest ranking officer in a company while the president ... Read Answer >>
  2. A 10-year, 8% coupon bond is currently trading at 98.5 of par ...

    The correct answer is: a) In your approved calculator, key the following amounts and solve for i: FV = 97.5 PMT = 4 n = 8 ... Read Answer >>
  3. What is the Detrended Price Oscillator (DPO) formula and how is it calculated?

    See how analysts and traders attempt to estimate the length and depth of current price cycles through the Detrended Price ... Read Answer >>
  4. A 6.4% coupon bond that is expected to mature in five years is currently trading ...

    The correct answer is: C) Step 1: Future value of reinvested coupons. PMT = 3.20; n = 10; I = 2.9% Therefore, FV = 36.516 Read Answer >>
  5. What exact information is included in the interest rate when calculating the present ...

    Find out what the interest rate of an annuity means in the context of the present value calculation, including an explanation ... Read Answer >>
  6. What is the difference between cost and price?

    Consider how cost affects a product's price. Corporate expenses and the current cost of living both impact the final sticker ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center