THE

MATHEMATICS
OF FINANCE
 ▫Everybody uses money.
Sometimes you work for your
Overview money and other times your
money works for you.
▫For example, unless you are
attending college on a full
scholarship, it is
▫very likely that you and your
family have either saved
money or borrowed money, or
both, to
▫pay for your education.
Simple and
Compound
Interest
 ▫This type of interest computed
based on the principal and is paid at
Simple the end of a specified period of time.

Interest ▫The following formula is used to

compute this type of interest:
▫I = Prt
▫where:
▫P – principal invested
▫r – rate of interest (converted to its
decimal equivalent)
▫t – time (expressed in years)
 ▫Find the interest paid by Ms. Rose
on $15,000 that she borrowed for
three years at 6% simple interest.
Example
▫Solution:
▫Given:
▫r = 6% = 0.06 t = 3 years

▫Required: Interest (I) is $2,700

▫Formula: I = Prt
▫Computation:
▫P = $15,000 I = $15,000(0.06)(3) =
$2,700
▫Therefore, the interest paid by Ms.
Rose is $2,700
 ▫This is an
Compound
Amount
accumulated
amount composed
of the principal and
the compound
interest.
Credit Cards and
Consumer Loans
 ▫provides a lot more flexibility
in that you can decided how
Credit much you want to borrow and
card how much you want to pay
back every month.
▫As long as you stay within
your credit limit you have the
freedom to decided how much
you want to borrow and how
much to pay back each month.
 ▫a good alternative to a credit
card if you want predictability
Consumer with your monthly expenses.
loan ▫A consumer loan provides a
set plan for your monthly down
payments which gives many a
sense of security.
Stocks, Bond and
Mutual Funds
 ▫an investment in a
company and are very
Stocks common in the financial
world. If you own a stock,
you are a part owner of the
business.
▫More risky, but the returns
are frequently greater
 ▫In theory, the goal of
Stocks buying stocks is to
sell them at a higher
price than you
bought them.
 ▫Bonds are actually
Bonds a loan to a
company or the
government.
 ▫A mutual fund is made up
Mutual of a pool of money
collected from many
Funds different investors for the
purpose of investing in
stocks, bonds, real estate,
or money market accounts.
Thanks!
Any questions?