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ARAKSH MATHS PROJECT

FINANCIAL MATHEMATICS

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ARAKSH MATHS PROJECT

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  1. Araksh Malhotra 11TH B

  2. FINANCIAL MATHEMATICS Today’s Topics: ⊲Simple Interest ⊲Compound Interest Loan policies and its calculations ⊲Fixed Term Deposits

  3. In order to limit credit risk, it is compulsory that suitable and effective policies, procedures, and practices are developed and executed. Loan policies should coordinate with the target and objectives of the bank, in addition to supporting safe and sound lending activity.

  4. A Review of Simple Interest SIMPLE INTEREST Is: Simple (to compute) Interest paid only on the original principal, C, Also referred to as flat rate interest Use the following simple interest formula: I = C × r × n where C is the principal or money deposited, r is the simple interest per annum as a decimal, n is time expressed in terms of years Araksh

  5. A Review of Compound Interest Compound interest is the interest earned not only on the original principal, but also on all interests earned previously. In other words, at the end of each year, the interest earned is added to the original amount and the money is reinvested. A = C x (1 + r/100)n I = C x (1 + r/100)n - C This means that the interest is added to the principal each period so that the principal continues to grow throughout the life of the loan or investment. Remember, to find total interest earned from the beginning of the loan or investment to the end, subtract the principal from the final balanc

  6. Financial Math: TVM Solver PV = 0.00 PMT = 0.00 FV = 0.00 P/Y = 1.00 C/Y = 1.00 PMT: END BEGIN See Investigation 1 for meanings: p434 N (number of payments/time periods) I% (interest rate) PV (present value of the investment) FV (future value of the investment) P/Y (number of payments per year) C/Y (number of compounding periods per year)

  7. 13 FINANCIAL CALCULATIONS To display the FINANCE CALC menu, press APPS, ENT. CALC VARS 1: TVM Solver... : Displays the TVM Solver. 2: tvm_Pmt : Computes the amount of each payment. 3: tvm_I%: Computes the interest rate per year. 4: tvm_PV: Computes the present value. 5: tvm_N: Computes the number of payment periods. 6: tvm_FV: Computes the future value. 7: npv(: Computes the net present value.

  8. Calculate the interest paid on a deposit of $6000 at 8% p.a. (per annum) compounded annually for 3 years. Keystrokes: Float: 2, APPS, ENT, ENT N= 36 payments (3 years) I%= 8.00 PV = PMT=0.00 FV = ? P/Y = 12 (1 year) C/Y = 12 (1 year)

  9. Fixed Term Deposits Effective/Effective Rate These deposits are ‘locked away’ by a financial institution for a fixed time period of one month to ten years at a FIXED rate. Interest is accrued or compounded, therefore the principal or deposit increases during the fixed term. The longer the money is locked away the better! Typical Question: Find the effective after tax return if the investor’s tax rate is 48.5 cents in the dollar (i.e. 48.5%) Turned to p.441 The effective rate is the interest rate compounded annually. R = (1 + i)c

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