Copyright © 2019 Pearson Education, Inc. Lial/Hungerford/Holcomb/Mullins: Mathematics with Applications 12e Finite Mathematics with Applications 12e Copyright © 2019 Pearson Education, Inc. Slide 1 ALWAYS LEARNING

Mathematics of Finance Chapter 5 Mathematics of Finance

Simple Interest and Discount Section 5.1 Simple Interest and Discount

Example: To furnish her new apartment, Maggie Chan borrowed $4000 at 3% interest from her parents for 9 months. How much interest will she pay? Solution: Use the formula with Thus, Maggie pays a total of $90 in interest.

Section 5.2 Compound Interest

Example: Suppose that $5000 is invested in a savings account at an annual interest rate of 3.1% compounded continuously for 4 years. Find the compound amount. Solution: In the formula for continuous compounding let and Then a calculator with an key shows that

Annuities, Future Value, and Sinking Funds Section 5.3 Annuities, Future Value, and Sinking Funds

Figure 5.7

Example: A business sets up a sinking fund so that it will be able to pay off bonds it has issued when they mature. If it deposits $12,000 at the end of each quarter in an account that earns 5.2% interest, compounded quarterly, how much will be in the sinking fund after 10 years? Solution: The sinking fund is an annuity, with The future value is So there will be about $624,370 in the sinking fund. Figure 5.11 shows the entries in the TVM solver.

Annuities, Present Value, and Amortization Section 5.4 Annuities, Present Value, and Amortization

Example: Camila was in an auto accident. She sued the person at fault and was awarded a structured settlement in which an insurance company will pay her $2000 at the end of each month for the next seven years. How much money should the insurance company invest now at 4.7%, compounded monthly, to guarantee that all the payments can be made? Solution: The payments form an ordinary annuity. The amount needed to fund all the payments is the present value of the annuity. Apply the present-value formula with (the interest rate per month). The insurance company should invest The entries in the TVM solver appear in Figure 5.19