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. N

    A Nasdaq stock symbol specifying that it is the company's third ...
  4. Qstick Indicator

    A technical indicator developed by Tushar Chande to numerically ...
  5. After-Tax Payable Period

    The average period that a company has between receiving goods ...
  6. Paradox of Rationality

    The irony that rational decision-making in game theory situations ...
Related Articles
  1. Markets

    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. Markets

    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. ETFs & Mutual Funds

    2 Low Volatility ETFs That Keep Winning

    While the market bounces up and down, these two low-volatility ETFs keep delivering for investors.
  4. Markets

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

    These stocks have high debt-to-equity ratios making them prime candidates to short.
  5. Markets

    These 25 Stocks Are Dividend Superstars (NVDA, MA)

    These 25 stocks are dividend superstars, but only four should be on your radar.
  6. Trading

    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.
  7. Markets

    15 Companies Burning Major Cash (FCX,HES,MRO,MUR)

    These 15 companies have negative free cash flow in a big way.
  8. Markets

    The Most Shorted Stocks and ETF (PFE,SPY,CHK,S)

    These stocks and ETF are heavily shorted and have been rallying at breakneck speed. Will it continue?
  9. Markets

    Are High-Multiple Tech Stocks Winners or Losers?

    Are high-multiple tech stocks a good investment right now?
  10. Markets

    Top Healthcare, Medical Equipment Stocks of 2015

    A short list of the top healthcare and medical equipment stocks of 2015.
RELATED FAQS
  1. How do I adjust the rule of 72 for higher accuracy?

    Read about the Rule of 72, why it is only an approximation, and how the Rule of 69.3 can be substituted in for more accurate ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. You expect to sell your only stock in 2 years time at a price of $42.50 ...

    The correct answer is: d) Step 1: Find the equivalent monthly return from the stock investment FV = (42.50 + 1.75) = 44.25 ... Read Answer >>
  5. What is a drawdown arrangement?

    Find out what a drawdown arrangement is, how it differs from a normal annuity, and why they form an important part of retirement ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center