Financial Mathematics Flashcards
What is an annuity?
A fixed amount of money that is paid in regular installments.
When do you use the future value formula?
When you need a specific amount of money in the future, for example an investment.
When do you use the present value formula?
When calculating the repayments on a loan.
In all financial mathematics questions, if interest is compounded monthly, what happens to the n and i in the formulas?
n, which is the period is multiplied by 12.
i, which is the interest rate is divided by 12.
What is a sinking fund?
A savings account which is set up in order to save money to replace an item sometime in the future.
If an item depreciates on a reducing balance, which formula is used to calculate its future/final value?
A = P(1 - i)^n
In the present value formula, what does P represent?
P represents the outstanding balance on a loan with n payments still to go.
How do you determine the period of a compound interest problem?
Use logarithms
What tool do we use to solve problems where there are changes in interest rate and/or withdrawals or deposits?
A timeline
When are payments made in problems involving the future value formula?
At the end of a period.
For example, at the end of a month.
