4: Mathematics of Finance
In this chapter, you will learn to:
- Solve financial problems that involve simple interest.
- Solve problems involving compound interest.
- Find the future value of an annuity, and the amount of payments to a sinking fund.
- Find the future value of an annuity, and an installment payment on a loan.
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- 4.1: Simple Interest and Discount
- It costs to borrow money. The rent one pays for the use of money is called the interest. The amount of money that is being borrowed or loaned is called the principal or present value. Simple interest is paid only on the original amount borrowed. When the money is loaned out, the person who borrows the money generally pays a fixed rate of interest on the principal for the time period he keeps the money.