SAMPLE College Math

‭Chapter 2:‬ ‭Financial Mathematics‬

‭Overview‬ ‭Money‬ ‭is‬ ‭an‬ ‭essential‬ ‭component‬‭of‬‭everyday‬‭life.‬‭Sometimes‬‭we‬‭work‬‭to‬‭earn‬‭money‬‭and‬‭sometimes‬ ‭money‬ ‭works‬ ‭for‬ ‭us,‬ ‭helping‬ ‭us‬ ‭earn‬ ‭more‬ ‭money.‬ ‭Financial‬ ‭mathematics‬ ‭deals‬ ‭with‬ ‭applies‬ ‭mathematics‬‭to‬‭real‬‭life‬‭situations.‬‭We‬‭all‬‭make‬‭purchases‬‭of‬‭physical‬‭as‬‭well‬‭as‬‭financial‬‭products‬‭and‬ ‭services‬‭and‬‭with‬‭the‬‭help‬‭of‬‭financial‬‭mathematics,‬‭we‬‭can‬‭become‬‭smart‬‭consumers.‬‭The‬‭motivation‬‭of‬ ‭this‬‭course‬‭is‬‭not‬‭just‬‭to‬‭excel‬‭in‬‭your‬‭educational‬‭career,‬‭but‬‭to‬‭equip‬‭you‬‭with‬‭the‬‭skills‬‭to‬‭understand‬ ‭the‬ ‭daily‬ ‭transactions‬ ‭happening‬ ‭around‬ ‭you.‬ ‭You‬ ‭will‬ ‭become‬ ‭an‬ ‭intelligent‬ ‭consumer‬ ‭and‬ ‭saver‬ ‭by‬ ‭learning even the basic concepts underlying financial mathematics.‬ ‭This‬ ‭chapter‬ ‭will‬ ‭cover‬ ‭important‬ ‭concepts‬ ‭like‬ ‭percentage,‬ ‭discounts,‬ ‭markups,‬ ‭taxes,‬ ‭changes‬ ‭in‬ ‭percentage,‬ ‭profits‬ ‭and‬ ‭losses.‬ ‭Further,‬ ‭the‬ ‭financial‬‭transactions‬‭taking‬‭place‬‭in‬‭the‬‭financial‬‭markets‬ ‭are‬ ‭also‬ ‭taught‬ ‭in‬ ‭this‬ ‭lesson,‬ ‭which‬ ‭consists‬ ‭of‬ ‭simple‬ ‭interest,‬ ‭compound‬ ‭interest,‬ ‭effective‬ ‭rate‬ ‭of‬ ‭interest, continuous compounding, effective annual yield, and present and future values.‬ ‭Objectives‬

‭By the end of the chapter, you will be able to understand and apply the concepts of:‬

‭●‬ ‭Percentages and their usages‬ ‭●‬ ‭Changes in percentages‬ ‭●‬ ‭Different interest rates‬ ‭●‬ ‭Compounding techniques‬ ‭●‬ ‭Present and future value‬

‭A. Percent‬ ‭We‬ ‭are‬ ‭familiar‬ ‭with‬ ‭the‬ ‭word‬ ‭‘percentage’‬‭and‬‭often‬‭use‬‭it‬‭to‬‭describe‬‭interest‬‭rates,‬‭growth‬‭in‬‭sales,‬ ‭exam‬‭scores,‬‭etc.‬‭For‬‭example,‬‭if‬‭a‬‭student‬‭scored‬‭85%‬‭on‬‭the‬‭CLEP‬‭college‬‭mathematics‬‭examination,‬‭it‬ ‭would mean they got 85 questions correct out of 100:‬ ‭1 ‭8 0 5 0 ‬ ‬ ‭%‬ ‭But‬‭what‬‭does‬‭percent‬‭or‬‭percentage‬‭mean?‬‭Percent‬‭is‬‭generally‬‭used‬‭to‬‭describe‬‭any‬‭value‬‭‘out‬‭of‬‭100’,‬ ‭which‬ ‭means‬ ‭‘divide‬ ‭by‬‭100’.‬‭The‬‭denominator,‬‭however,‬‭does‬‭not‬‭always‬‭default‬‭to‬‭100.‬‭In‬‭that‬‭case,‬ ‭make‬ ‭the‬ ‭denominator‬‭100‬‭by‬‭multiplying‬‭the‬‭factor‬‭by‬‭a‬‭scaler.‬‭For‬‭example,‬‭suppose‬‭Randall‬‭scored‬ ‭15 out of 20, then the fraction becomes:‬ ‭1 ‭2 5 0 ‬ ‬

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