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Mathematics in the Modern World > Module 7. Mathematics of Buying and Selling > Flashcards

Module 7. Mathematics of Buying and Selling Flashcards

1
Q

is calculated only on the original principal amount and is paid at the end of the loan

A

simple interest

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2
Q

is fee or rent that lenders charge to borrowers for the temporary use of the borrowed money

A

interest

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3
Q

is the amount borrowed

A

principal

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4
Q

is the percentage of the principal that will be charged for specified period of time

A

rate of interest

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5
Q

specified period of time in rate of interest examples

A
  • daily
  • weekly
  • monthly
  • yearly
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6
Q

Variables that will be in mathematical treatment of simple interest:
P

A

principal amount of the loan or investment

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7
Q

principal amount of the loan or investment

A

P

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8
Q

Variables that will be in mathematical treatment of simple interest:
r

A

annual rate of simple interest

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9
Q

annual rate of simple interest

A

r

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10
Q

Variables that will be in mathematical treatment of simple interest:
t

A

time period (term) of loan or investment

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11
Q

time period (term) of loan or investment

A

t

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12
Q

Variables that will be in mathematical treatment of simple interest:
I

A

amount of interest paid or received

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13
Q

amount of interest paid or received

A

I

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14
Q

Variables that will be in mathematical treatment of simple interest:
F

A

maturity value of the loan or investment

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15
Q

maturity value of the loan or investment

A

F

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16
Q

Simple interest formula:
I

A

I = Prt

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17
Q

Simple interest formula:
P

A

P = I/rt

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18
Q

Simple interest formula:
F

A

F = P + I
F = P (1 + rt)

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19
Q

Determining the time period

A
  1. loan date
  2. due date (maturity date)
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20
Q

the first day of a loan

A

loan date

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21
Q

last day of the loan

A

due date (maturity date)

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22
Q

due date is also called as

A

maturity date

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23
Q

Steps in solving number of days of a loan

A
  1. identify number of days remaining in first month by subtracting loan date from number of days in that month
  2. write number of days in each month
  3. add days from first to last month
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24
Q

Two ways of determining time period

A
  1. Approximate time
  2. Actual time
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25
Q

uses 30 days in every month

A

approximate time

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26
Q

uses exact number of days in every specific month

A

actual time

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27
Q

Leap years

A

2016, 2020, 2024 (every 4 years)

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28
Q

is compound in 365 days in a year as the time factor denominator

A

exact interest

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29
Q

type of interest wherein the number of days is computed based on 360 days in a year

A

ordinary interest

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30
Q

Rate must be converted into a __ or a __ before substituting to any formula

A
  • decimal
  • fraction
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31
Q

time period is computed in terms of __

A

years

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32
Q

Banks and most other institution use __ __

A

ordinary interest

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33
Q

“ordinary interest in actual time”

A

Banker’s Rule

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34
Q

Banker’s Rule

A

“ordinary interest in actual time”

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35
Q

if type of interest is not specified in any problem, the problem will be solved using the __ __

A

Banker’s Rules (ordinary interest in actual time)

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36
Q

when the time period of a loan reaches its maturity date, the loan is said to __

A

mature

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37
Q

In that point, the borrower repays the principal and the interest. The total repayment is known as the __ __

A

future value (maturity value)

38
Q

The __ __ is known as the future value (maturity value)

A

total repayment

39
Q

the simple interest method is restricted mostly to __ and ____ __

A
  • loans
  • interest-earning investments
40
Q

is employed in virtually all instances where the duration exceeds one year, and it is also used for some short-term loans and investments

A

compound interest

41
Q

is applied to long-term loans

A

principle of compound interest

42
Q

the principle of compound interest is applied in ____ __

A

long-term loans

43
Q

the procedure in which interest is periodically calculated and added to the principal

A

compound interest

44
Q

time interval between succeeding interest calculations

A

conversion period

45
Q

conversion period is also known as

A
  • compounding period
  • interval period
46
Q

the interest earned during a period is converted to __ at the end of the period because the __ and __ are combined and treated as the new __ for the succeeding period

A
  • principal
  • principal and interest
  • principal
47
Q

effect of converting interest to principal is that the interest earned in a period will also earn interest in all __ __

A

succeeding period

48
Q

number of compoundings that take place in a year

A

compound frequency

49
Q

compound frequency is also called as

A

conversion frequency

50
Q

compounding frequency:
annual

51
Q

compounding frequency:
semiannual

52
Q

compounding frequency:
quarterly

53
Q

compounding frequency:
bimonthly

54
Q

compounding frequency:
monthly

55
Q

annual

56
Q

semiannual

57
Q

quarterly

58
Q

bimonthly

59
Q

monthly

60
Q

is the stated annual interest rate on which the compound interest calculation is based

A

nominal interest

61
Q

rate of interest earned in one conversion period

A

periodic interest rate

62
Q

Mathematical treatment of compound interest:
F

A

maturity value of the loan or investment

63
Q

Mathematical treatment of compound interest:
P

A

principal amounf

64
Q

Mathematical treatment of compound interest:
I

A

amount interest paid or received

65
Q

Mathematical treatment of compound interest:
j

A

nominal interest rate

66
Q

Mathematical treatment of compound interest:
m

A

number of conversion per year

67
Q

Mathematical treatment of compound interest:
t

A

time period

68
Q

Mathematical treatment of compound interest:
i

A

periodic interest rate

69
Q

Mathematical treatment of compound interest:
n

A

number of conversions of the loan

70
Q

nominal interest rate

71
Q

number of conversion per year

72
Q

periodic interest rate

73
Q

number of conversions of the loan

74
Q

Compound interest formulas:
F

A

F = P (1 + i) ^n

75
Q

Compound interest formulas:
P

A

P = F (1 + i) ^-n

76
Q

Compound interest formulas:
I

77
Q

Compound interest formulas:
i

78
Q

Compound interest formulas:
n

79
Q

Rounding-off is only permissible in the __ __

A

final result

80
Q

refers to the periodic interest rate multiplied by the number of periods in a year

A

nominal interest rate

81
Q

does not take compounding into account

A

nominal interest rate

82
Q

nominal interest rates are not always __, unless they include the same compounding periods

A

comparable

83
Q

considered a more accurate measure of interest

A

effective interest rate

84
Q

calculated based on the nominal interest rate and its compounding periods

A

effective interest rate

85
Q

different interest rates can be compared directly since they have been adjusted to reflect the __ _ __

A

effect of compounding

86
Q

is the stated annual interest rate on which the compound interest calculation is based

A

nominal interest rate

87
Q

“nominal” meaning

A

in the name only

88
Q

not numerically equal to the actual rate of interest realized over a full year

A

nominal annual rate of interest

89
Q

is the equivalent annually compounded rate

A

effective interest rate

90
Q

Effective rate formula

A

r = (1 + j/m)^m - 1

91
Q

Nominal rate formula

A

j = m( (^m√1 + r) - 1)

92
Q

if the problem is silent where it does not say what rate should be used, use the __ __ formula

A

effective rate

Mathematics in the Modern World (13 decks)

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