1. Lial/Hungerford/Holcomb/Mullins: Mathematics with Applications 11e Finite Mathematics with Applications 11e
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2. Mathematics of Finance
Chapter 5
Mathematics of Finance
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3. Simple Interest and Discount
Section 5.1
Simple Interest and Discount
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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.
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Section 5.2
Compound Interest
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Example:
Suppose that $5000 is invested 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
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19. Annuities, Future Value, and Sinking Funds
Section 5.3
Annuities, Future Value,
and Sinking Funds
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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.
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32. Annuities, Present Value, and Amortization
Section 5.4
Annuities, Present Value,
and Amortization
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Example:
Jim Riles was in an auto accident. He sued the person at fault and was awarded a structured settlement in which an insurance company will pay him $600 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
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