Unit 1- Financial Mathematics: Investing Money

Question 1

Explain what each of the following variables stands for:
- I
- P
- A
- r
- t
- a

Answer 1

• I: Interest
• P: Principal
• A: Accumulated Value
• r: Annual interest rate expressed as a decimal
• t: time in years
• a: payment value

Question 2

Give the formula for each of the following variables:
- i
- n
- r

Answer 2

• i= annual interest rate expressed as a decimal/ number of compounding periods in a year
• n= (# of compounding periods in a year)(# of years)
• r= 1+i

Question 3

Explain the rule of 72 and give the formula:

Answer 3

• The rule of 72 is a quick way to estimate the length of time (in years) that it will take for an investment to double
• 72/ interest as a %

Question 4

How long is each of the following compounding periods?
1. Annually
2. Monthly
3. Weekly
4. Daily
5. Semi- Annually
6. Bi- Weekly
7. Semi- Monthly
8. Quarterly

Answer 4

1. 1 time/ year
2. 12 times/ year
3. 52 times/ year
4. 365 times/ year
5. 2 times/ year
6. 26 times/ year
7. 24 times/ year
8. 4 times/ year