Chapter 3 Investment Math: Quick Estimate and Financial Calculators

Question 1

Identify and briefly explain the logic system that is used in most handheld calculators.

Answer 1

Algebraic Logic-a sequentially based mathematical logic system that assigns levels of power to mathematical operations. (multiplication and division performed before addition and subtraction)

Chaining Logic-A strict, sequentially based mathematical system in which the operator is assigned prior to entering the numeric value. (operations are performed in order based on previous calculations)

Reverse Polish notation Logic-A strict, sequentially based mathematical system in which the operator is assigned after entering the numeric value. (confusing)

Question 2

Explain the chaining logic system.

Answer 2

Chaining Logic-A strict, sequentially based mathematical system in which the operator is assigned prior to entering the numeric value. (operations are performed in order based on previous calculations)

Question 3

What variables must be known to solve a problem for the periodic debt payment of principal plus interest over a prescribed term?

Answer 3

amortization term [N]-number of periodic payments to be made throughout the term of the loan.

interest rate [I/YR]-the periodic interest rate of the loan

principal amount [PV]-the principal balance of the loan amount

periodic payment [PMT]-the actual periodic payment

Question 4

Using the algebraic system of logic, solve the following problem:

7 - 3 + 2 x 4

Answer 4

12

Question 5

Rewrite 7 - 3 + 2 x 4 using reverse Polish notation logic

Answer 5

7 [enter] 3 [-] 2 [enter] 4 [x] [+] (result) 12

Question 6

What are the four variables that affect the principal and interest portion of loan payments?

Answer 6

amortization term
interest rate
principal amount
periodic payment

Question 7

Calculate the monthly payment amount of a 9% loan amortized over 30 years if the principal balance is $645,000.

Answer 7

$5,189.82

Solution:
[gold] [C ALL]
12 [gold] [P/YR]
9 [I/YR]
30 [gold] [x P/YR]
645000 [PV] [PMT]
Result:-5,189.82

Question 8

What is the principal balance on a $645,000 loan at 9% for 30 years after 1 year?

Answer 8

$640,593.34

Solution:
Solve for monthly payment
1  [input] 2
[gold] [AMORT] [=] [=] [=]
Result: 640,593.34

Question 9

What is the result of the following mathematical problem using the algebraic logic system?
6 [+] 5 [-] 4 [x] 2

a. 14
b. 3
c. 8
d. 11

Answer 9

b. 3

Question 10

Which logic system is a strict sequentially based system in which a result is obtained after each operation?

a. reverse Polish notation
b. chaining
c. algebraic
d. rational

Answer 10

b. chaining

Question 11

Which symbol on a financial calculator is used in a loan amortization problem?

a. [NPV]
b. [CHS]
c. [PMT]
d. [IRR]

Answer 11

c. [PMT]

Question 12

To solve for the periodic payment of an amortizing loan, all of the following variables must be known except:

a. interest rate
b. principal amount
c. amortization term
d. present value

Answer 12

d. present value

Question 13

What is the monthly payment on a $2,500,000 loan at 11% per annum for 25 years?

a. $25,000
b. $24,611.23
c. $24,502.83
d. $24,489.72

Answer 13

c. $24,502.83

Question 14

What is first year’s interest portion on a $2,500,000 loan at 11% per annum for 25 years?

a. $247,997.65
b. $251,093.77
c. $269,531.10
d. $274,010.44

Answer 14

d. $274,010.44

Question 15

What is the loan amount for a loan with 10% interest for 12 years and a monthly payment of $932.16?

a. $78,000
b. $77,000
c. $79,000
d. $76,000

Answer 15

a. $78,000