Financial Applications
Financial mathematics covers compound interest, depreciation, loans, and investments. Understanding these helps make informed decisions about money.
What You Need to Know
Key Concept Diagram
Compound interest: A = P(1 + r/n)^(nt) where P=principal, r=rate, n=compounds per year
Depreciation (reducing balance): V = P(1 - r)^t
Effective annual rate accounts for compounding frequency
Break-even analysis finds where revenue equals costs
Key Vocabulary
Principal
The original amount invested or borrowed
Compound interest
Interest calculated on both the principal and accumulated interest
Depreciation
A decrease in value of an asset over time
Inflation
A general rise in prices over time, reducing purchasing power
Knowledge Check
Select the correct answer for each question. Click "Check Answer" to see if you are right.
Question 1
$5000 is invested at 4% p.a. compounded annually for 3 years. What is the amount?
Question 2
A car worth $20 000 depreciates at 15% p.a. What is its value after 2 years?
Question 3
Which describes compound interest compared to simple interest over the same period?
Key Concepts Summary
- ●Compound interest: A = P(1 + r/n)^(nt) where P=principal, r=rate, n=compounds per year
- ●Depreciation (reducing balance): V = P(1 - r)^t
- ●Effective annual rate accounts for compounding frequency
- ●Break-even analysis finds where revenue equals costs