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Title: Financial Maths- Interest and Compounding
Description: This document outlines the main terms used in Business calculations and progresses onto explaining how compound interest is used and calculated with examples.
Description: This document outlines the main terms used in Business calculations and progresses onto explaining how compound interest is used and calculated with examples.
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Financial Maths
Interest and Compounding
The following terms are used in Business Calculations
...
A: A stands for accrued amount and is the total amount in which interest has
been calculated and added after some time has elapsed
...
Interest is a proportionate amount of money added to
the Principal amount
...
n: n indicates the number of time periods usually in which amounts are being
borrowed or invested
...
Simple Interest: Interest is earned only on the principal amount
...
Compound interest is calculated using the following formula:
An = (1 + r)n P
- If a question asks us to calculate the amount for after 7 years, we will use
n =7
...
Sample question:
Suppose we are investing £400 in an account which pays compound interest
at the rate of 5% per year
...
05
n=7
A= (1 + 0
...
84
- If the interest is not paid annually, (or is paid more than once a year), we
proportion it over the year
...
015
Sample question:
Suppose we are investing £2000 in an account which pays compound
interest at the rate of 5% per year
...
05/12 = 0
...
004)60 x 2000
= £2541
...
- Use logs to solve reverse questions with exponentials and indices
Title: Financial Maths- Interest and Compounding
Description: This document outlines the main terms used in Business calculations and progresses onto explaining how compound interest is used and calculated with examples.
Description: This document outlines the main terms used in Business calculations and progresses onto explaining how compound interest is used and calculated with examples.