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CHAPTER 7- FINANCIAL MATHEMATICS - Coggle Diagram
CHAPTER 7- FINANCIAL MATHEMATICS
INTRODUCTION
Investors want high returns on their investments.
Developed from the concept that lending money results in loss to the lender
Interest rates fall = stock prices will increase.
SIMPLE INTEREST
FORMULA - I = PRT
I - SIMPLE INTEREST
P - PRINCIPAL
R - RATE OF SIMPLE INTEREST
T - TIME OR TERM IN YEARS
SIMPLE AMOUNT FORMULA
S = P + PRT
COMPOUND INTEREST
When you borrow money from bank, you pay interest
Compound interest = calculated on the original and on the accumulated past interest.
Used financial planning, investment, budgeting, and financial control.
COMPOUND INTEREST FORMULA
S = P(1 + i) n
ANNUITY
Annuity concepts enable people to plan for the future in terms of investment and savings.
Financial consultants use annuity calculations to advise people on investments.
A property agent uses annuity calculation to estimate the repayments of housing and car loans.
FUTURE VALUE OF ORDINARY ANNUITY CERTAIN
Mainly discuss ordinary annuity certain – payments are made at the end of the payment period
And the interest and payment period are of the same interval.
Note that unless, money invested every period is understood to mean money invested at the end of every period.
FORMULA
S = R (1+i)n-1