1. Chapter two Mathematics of Finance
Afjal hossain
Assistant professor
Department of marketing, Pstu

2. Theory of Interest
Interest: Interest is the amount of payment which is made for an installment. It is of two types:
term
Definition with examples
Simple Interest
Simple interest is the payment which is paid over the years in a same amount. it is symbolized by I where I = Pnr
Compound Interest
Compound Interest is the accumulated interest for the end of a period. It is symbolized by CI where CI =

3. Practices
Mr. Rahim has invested Tk. 30,000 for 5 years at 10% rate of interest. What will be the simple interest and amount after 5 years?
Mr. Rahman has invested Tk. 30,000 for 4 years at 12% rate of interest. What will be the simple and compound interest? Find out the amount after 4 years is paid-
(a) yearly, (b) monthly (c) quarterly (d) half yearly (e) daily.

4. Related terms
Depreciation: Depreciation is the wasted value of a property. In case of depreciation, the present value is diminished every year by a certain constant amount and in the subsequent period the diminished value becomes the principal value. IN case of uniform decrease or depreciation, “i” is to be substituted by the following formula: A = P (1 - i)n
Annuity: An annuity is a series of payments, ordinarily of a fixed amount payable regularly at equal intervals. The intervals may be a year, a half-year, a month and so on. Annuity is of 2 types:

5. Types of annuity term Definition with examples
Annuity Contingent
The payments are to be made till the happening of some contingent event such as the death of a person the marriage of a girl, the education of a child reaching a specified age.
Annuity Certain
Certain payments are to be made unconditionally for a certain or fixed number of years. Annuity certain are of 2 types:
Annuity Due: Where the first payment falls due at the beginning of the first integral and so all payments are made at the beginning of successive intervals.
Annuity Immediate: Where the first payment falls due at the end of the first interval.
When immediate or due is not clearly mentioned, then the formula of immediate will be used.

6. Difference between Annuity Certain and Annuity Contingent
Subject
Annuity Certain
Annuity Contingent
Fixation
Here amount is prefixed
Here amount is to be fixed up to the contingent occurred.
Payment Period
Here payment is fixed
Here payment period depends upon contingence occurrence time.
Uses
It is vastly used
It is quietly used
Ways of payment
Payments are to be made unconditionally
Payments are to be made smoothly
Preference
It is preferable to loan
It is preferable to loaner
Risk
It bears a risk up to full payment
It bears a risk up to each installment

7. Present value
Present value of an annuity is the sum of the p[resent value of its installments. When the amount is received in the beginning period, borrow or loan is referred then present formula is used. It is of 2 types:
Present value of an immediate annuity,
Present value of an annuity due,

8. Future value
Future value of an annuity is the amount of money which is received in the end of a specified time. When amount, profit is mentioned then future formula is used. It is of two types:
Future value of an immediate annuity,
Future value of an annuity due,

9. Endowment Fund
The fund or total money which is received in total in anytime. Here time is not specified. Endowment Fund/ Lump Sum, Exercises !