Financial Maths Challenge

What is the formula to calculate compound interest?

• A = P(1 + r/n)^(nt)

• A = P(1 + r/n)^(n*t)

• A = P(1 + r/n)^(t)

• A = P(1 + r)^t

Define the concept of present value in financial mathematics.

• Present value is always higher than future value

• The present value is the current value of a future sum of money or cash flows, discounted back to the present using a specified rate of return.

• Present value is calculated by adding future interest to the current amount

• The present value is the future value of a current sum of money

Explain the difference between simple interest and compound interest.

• Simple interest is calculated daily, while compound interest is calculated annually.

• Simple interest is always higher than compound interest.

• Simple interest is linear, while compound interest grows exponentially.

• Simple interest and compound interest are the same thing.

How is the future value of an investment calculated?

• FV = PV * (1 - r)^n

• FV = PV + r * n

• FV = PV * (1 + r)^n

• FV = PV / (1 + r)^n

What is the formula for calculating the annual percentage rate (APR)?

• APR = (Interest / Principal) * (365 / Days loan is outstanding)

• APR = 100 * (Interest / Principal) * (30 / Days loan is outstanding)

• APR = 100 * (Interest / Principal) * (365 / Days loan is overdue)

• APR = 100 * (Interest / Principal) * (365 / Days loan is outstanding)

Discuss the concept of annuities and provide an example.

• An annuity is only available to young individuals

• An annuity involves a lump sum payment

• An annuity is a financial product that provides a series of payments made at equal intervals. An example is a pension plan where a retiree receives monthly payments for the rest of their life.

• An annuity is a type of insurance policy

What is the time value of money and why is it important in financial mathematics?

• The time value of money only applies to personal finance, not business finance

• The time value of money is irrelevant in financial mathematics

• The time value of money does not consider inflation or interest rates

• The time value of money is important in financial mathematics because it considers the opportunity cost of money over time, enabling better decision-making regarding investments and cash flows.

Explain the concept of amortization and its significance in loans.

• Amortization is a term used to describe loans that do not require any payments until the end of the term.

• Amortization is the process of spreading out loan payments over time, covering both principal and interest, ensuring full repayment by the end of the term. It helps borrowers understand monthly payments and how they reduce the principal balance.

• Amortization only covers the interest portion of loan payments, not the principal.

• Amortization is the process of increasing loan payments over time, resulting in faster repayment.

What role does the concept of inflation play in financial calculations?

• Financial calculations are not affected by inflation

• Inflation only affects certain types of financial transactions

• Inflation has no impact on financial calculations

• Inflation impacts the value of money over time and must be factored into financial calculations to ensure accurate results.

How can the Rule of 72 be used to estimate the doubling time of an investment?

• Doubling Time = 72 - Interest Rate

• Doubling Time = 72 + Interest Rate

• Doubling Time = 72 x Interest Rate

• Doubling Time = 72 / Interest Rate