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Mathematics 30 flashcards ~15 min

Financial Mathematics and Compound Interest

Financial mathematics applies core math principles to real-world money problems, from savings growth to loan repayment. This deck covers simple and compound interest formulas, the difference between nominal and effective rates, and time-value-of-money concepts...

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Financial mathematics applies core math principles to real-world money problems, from savings growth to loan repayment. This deck covers simple and compound interest formulas, the difference between nominal and effective rates, and time-value-of-money concepts like present value, future value, and net present value. You'll also review practical terms such as amortization, annuities, APR, depreciation, and the Rule of 72 for quickly estimating investment doubling time. A great refresher for finance, economics, or business math students, or anyone wanting to better understand loans, investments, and interest.

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Interest calculated only on the principal amount.
I = P × r × t.
Interest calculated on the principal plus previously earned interest.
A = P(1 + r/n)^(nt).
Principal, the initial amount of money.
The interest rate (as a decimal).
The number of times interest is compounded per year.
Time, usually in years.
Compound interest grows faster because it earns interest on interest.
A series of equal payments made at regular intervals.
The current worth of a future sum of money, discounted at a given rate.
The value of a current asset at a specified date in the future, based on growth rate.
The process of paying off debt through regular scheduled payments.
A loan used to purchase property, secured by that property.
Annual Percentage Rate, the yearly cost of a loan including fees.
A quick way to estimate how long an investment takes to double, using 72/interest rate.
The reduction in value of an asset over time.
A general increase in prices and fall in purchasing power over time.
A debt security where the issuer owes the holder a debt and pays interest.
A payment made by a corporation to its shareholders.
The mean annual growth rate of an investment over a specified period.
The interest rate used to determine the present value of future cash flows.
Real rates account for inflation; nominal rates do not.
The remaining amount owed, excluding interest.
Determining the point where total revenue equals total costs.
The difference between the present value of cash inflows and outflows.
A fund set aside to gradually save for a future obligation.
The actual interest rate earned or paid after accounting for compounding.
A loan with an interest rate that stays the same for its full term.
A loan with an interest rate that can change over time.