Finance Formulas

Quantitative Methods

foundation

Permutations (nPr)

nPr=n!(nr)!{}_{n}P_{r} = \frac{n!}{(n-r)!}

Reading the notation

nPr{}_{n}P_{r}
read 'n permute r': the number of ordered line-ups of r drawn from n
n!n!
factorial: n × (n−1) × … × 1 — all the ways to order the whole pool
(nr)!(n-r)!
dividing by this chops the product off after r slots: only the first r positions matter

Why it must be true

When order matters — assigning distinct roles, ranking finalists, filling 1st/2nd/3rd — count slot by slot: nn options for the first slot, n1n-1 for the second, and so on for rr slots. The factorial notation n!(nr)!\frac{n!}{(n-r)!} just truncates that product cleanly.

Permutations always outnumber combinations by a factor of r!r!: every unordered group can be arranged r!r! ways. If swapping two picks changes the outcome, you're counting permutations.

The derivation

Fill rr ordered slots from nn candidates:

nPr=n×(n1)××(nr+1){}_{n}P_{r} = n \times (n-1) \times \dots \times (n-r+1)

Multiply and divide by the remaining factorial to write it compactly:

nPr=n×(n1)××1(nr)××1=n!(nr)!{}_{n}P_{r} = \frac{n \times (n-1) \times \dots \times 1}{(n-r) \times \dots \times 1} = \frac{n!}{(n-r)!}

When to reach for it

Counting ordered arrangements — rankings, role assignments, sequences where position matters.

Listen for

ranked first, second, thirddistinct positions / roles / desksin how many orders

Back-of-the-envelope

Estimate it in your head first — then the calculator only confirms.

  • Just multiply r descending terms: 8P3 = 8 × 7 × 6 = 336. No factorials needed.

  • Cross-check: permutations = combinations × r!. If 56 and 336 both appear as choices with r = 3, they differ by 6 — order matters here, take the big one.

Traps in applying it

  • Dividing out r! as if order didn't matter — that's the combinations move.
  • Using n^r, which quietly allows the same person to fill two slots.
  • Multiplying n × r instead of the shrinking product n(n−1)…

Limits & criticisms

Assumes no repetition and distinguishable items; arrangements with repeats need the multinomial correction. Factorial growth makes brute-force enumeration hopeless quickly — by n = 15 the orderings exceed a trillion — so large problems are handled with logs and Stirling's approximation.

Where it came from

The factorial's first known rigorous treatment is Levi ben Gerson's 1321 proof that nn objects can be ordered in n!n! ways, with the machinery formalized alongside combinations in Bernoulli's Ars Conjectandi (1713). Permutations are the "order matters" half of classical counting.

Today they count rankings, orderings and assignments — league tables, waterfall priorities, scenario sequences — and serve as the denominator check whenever you must decide whether swapping two picks changes the outcome.

Where it leads

Master this and the following come almost for free: