Module 7. Mathematics of Buying and Selling Flashcards
is calculated only on the original principal amount and is paid at the end of the loan
simple interest
is fee or rent that lenders charge to borrowers for the temporary use of the borrowed money
interest
is the amount borrowed
principal
is the percentage of the principal that will be charged for specified period of time
rate of interest
specified period of time in rate of interest examples
- daily
- weekly
- monthly
- yearly
Variables that will be in mathematical treatment of simple interest:
P
principal amount of the loan or investment
principal amount of the loan or investment
P
Variables that will be in mathematical treatment of simple interest:
r
annual rate of simple interest
annual rate of simple interest
r
Variables that will be in mathematical treatment of simple interest:
t
time period (term) of loan or investment
time period (term) of loan or investment
t
Variables that will be in mathematical treatment of simple interest:
I
amount of interest paid or received
amount of interest paid or received
I
Variables that will be in mathematical treatment of simple interest:
F
maturity value of the loan or investment
maturity value of the loan or investment
F
Simple interest formula:
I
I = Prt
Simple interest formula:
P
P = I/rt
Simple interest formula:
F
F = P + I
F = P (1 + rt)
Determining the time period
- loan date
- due date (maturity date)
the first day of a loan
loan date
last day of the loan
due date (maturity date)
due date is also called as
maturity date
Steps in solving number of days of a loan
- identify number of days remaining in first month by subtracting loan date from number of days in that month
- write number of days in each month
- add days from first to last month
Two ways of determining time period
- Approximate time
- Actual time
uses 30 days in every month
approximate time
uses exact number of days in every specific month
actual time
Leap years
2016, 2020, 2024 (every 4 years)
is compound in 365 days in a year as the time factor denominator
exact interest
type of interest wherein the number of days is computed based on 360 days in a year
ordinary interest
Rate must be converted into a __ or a __ before substituting to any formula
- decimal
- fraction
time period is computed in terms of __
years
Banks and most other institution use __ __
ordinary interest
“ordinary interest in actual time”
Banker’s Rule
Banker’s Rule
“ordinary interest in actual time”
if type of interest is not specified in any problem, the problem will be solved using the __ __
Banker’s Rules (ordinary interest in actual time)
when the time period of a loan reaches its maturity date, the loan is said to __
mature