Financial Math

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Simple Interest
Future Value and Present Value
Compound Interest
Simple Interest vs Compound Interest
Compound Interest Frequency
Nominal an effective Interest rates
Compounding effect
Language of compunding
Future Value of Compounding
Present Value with Compounding
Annuity
Annuity
DCF and Annuity
Net Present Value
Standard deviation & Variance

Two classes took a

recent quiz. There were
10 students in each
class, and each class had
an average score of 81.5
Mean
Standard deviation & Variance

Why not just give an

average and the range of
data (the highest and
lowest values) to describe
the distribution of the
data?
Standard deviation & Variance

Well, for example, lets say from a

set of data, the average is 17.95
and the range is 23.

But what if the data looked

like this:
Standard deviation
Here is the average
& Variance
But really, most of the
numbers are in this area,
and are not evenly
distributed throughout the
And here is the range range.
Standard deviation & Variance

The Standard Deviation is a

number that measures
how far away each number
in a set of data is from their
mean.
Standard deviation & Variance

If the Standard Deviation is large, it

means the numbers are spread out from
their mean.

If the Standard Deviation is small, it

means the numbers are close to their
mean.
Standard deviation & Variance
Here are 72
the scores 76
on the 80
80
math quiz
81 Average:
for Team A: 83
84
81.5
85
85
89
The Standard Deviation measures how far away each number
in a set of data is from their mean.
For example, start with the lowest score, 72. How far
away is 72 from the mean of 81.5?
72 - 81.5 = - 9.5

- 9.5
Standard deviation & Variance
Or, start with the lowest score, 89. How far away is 89
from the mean of 81.5?
89 - 81.5 = 7.5

- 9.5 7.5
 Distance
from Mean

So, the first

72 -9.5
step to
76
finding the
Standard 80
Deviation is 80
to find all 81
the 83
distances 84
from the 85
mean. 85
89 7.5
 Distance
from Mean

So, the first

72 - 9.5
step to
76 - 5.5
finding the
Standard 80 - 1.5
Deviation is 80 - 1.5
to find all 81 - 0.5
the 83 1.5
distances 84 2.5
from the 85 3.5
mean. 85 3.5
89 7.5
 Distance
from Mean Distances
Squared

Next, you 72 - 9.5 90.25

need to 76 - 5.5 30.25
square each 80 - 1.5
of the 80 - 1.5
distances to 81 - 0.5
turn them 83 1.5
all into 84 2.5
positive 85 3.5
numbers 85 3.5
89 7.5
 Distance
from Mean Distances
Squared

Next, you 72 - 9.5 90.25

need to 76 - 5.5 30.25
square each 80 - 1.5 2.25
of the 80 - 1.5 2.25
distances to 81 - 0.5 0.25
turn them 83 1.5 2.25
all into 84 2.5 6.25
positive 85 3.5 12.25
numbers 85 3.5 12.25
89 7.5 56.25
 Distance
from Mean Distances
Squared

72 - 9.5 90.25
76 - 5.5 30.25 Sum:
80 - 1.5 2.25
214.5

Add up all 80 - 1.5 2.25

of the 81 - 0.5 0.25
distances 83 1.5 2.25
84 2.5 6.25
85 3.5 12.25
85 3.5 12.25
89 7.5 56.25
 Distance
from Mean Distances
Squared

72 - 9.5 90.25
76 - 5.5 30.25 Sum:
Divide by (n - 80 214.5
- 1.5 2.25
1) where n
represents 80 - 1.5 2.25 (10 - 1)

the amount 81 - 0.5 0.25 = 23.8

of numbers 83 1.5 2.25
you have. 84 2.5 6.25
85 3.5 12.25
85 3.5 12.25
89 7.5 56.25
 Distance
from Mean Distances
Squared

72 - 9.5 90.25
76 - 5.5 30.25 Sum:
Finally, take 80 - 1.5 2.25
214.5

the Square 80 - 1.5 2.25 (10 - 1)

Root of the 81 - 0.5 0.25 = 23.8

average 83 1.5 2.25
distance 84 2.5 6.25
= 4.88

85 3.5 12.25
85 3.5 12.25
89 7.5 56.25
 Distance
from Mean Distances
Squared

72 - 9.5 90.25
76 - 5.5 30.25 Sum:
80 - 1.5 2.25
214.5

This is the 80 - 1.5 2.25 (10 - 1)

Standard 81 - 0.5 0.25 = 23.8

Deviation 83 1.5 2.25
= 4.88
84 2.5 6.25
85 3.5 12.25
85 3.5 12.25
89 7.5 56.25
 Distance
from Mean Distances
Squared

57 - 24.5 600.25
Now find 65 - 16.5 272.25 Sum:
the 83 1.5 2.25
2280.5

Standard 94 12.5 156.25 (10 - 1)

Deviation 95 13.5 182.25 = 253.4

for the 96 14.5 210.25
other class 98 16.5 272.25
= 15.91

grades 93 11.5 132.25

71 - 10.5 110.25
63 -18.5 342.25
Now, lets compare the two classes again

Team A Team B

Average on
the Quiz 81.5 81.5
Standard
Deviation 4.88 15.91