Business Math MATH 1324
North Lake College
David Katz, instructor
Section by Section List of Test Topics For Exam #4
(Chapters 5)
The exam will consist of 11 free response questions from this list of
26 topics from your homework sections.
This unit focuses on finance problems. The basic
finance formulas on pages 270, 278, 283, 291, 295 will be given to you on a
formula sheet at the Testing Center. Although you do not need to memorize
these formulas, you do need to know what the parameters (e.g., FV, PV, m, n,
etc.) stand for.
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(5-1) Identify the interest rate r and the time
t in years in an applied problem on simple interest
-
(5-1) Know that future value (FV) always occurs
after present value (PV) on a timeline
-
(5-1) Compute the future value for an investment earning
simple interest
-
(5-1) Compute the present value for an investment earning
simple interest
-
(5-1) Compute the total interest earned on an investment
earning simple interest
- (5-1) Know that maturity value is the dollar
value printed on the bond and is returned to you when the bond matures
- (5-2) Identify the interest rate r, the time t
in years, and the number m of compounding periods per year for a
compound interest problem
- (5-2) Know that annual percentage rate (APR) is
the same as r in the textbook
- (5-2) Know that simple interest is the same as compound
interest when m = 1 (one time per year)
- (5-2) Compute the future value for an investment earning
compound interest
- (5-2) Compute the present value for an investment
earning compound interest
- (5-2) Compute the total interest earned for an
investment earning compound interest
- (5-2) Know that zero-coupon bond means a bond
that officially does not earn any interest
- (5-2) Compute the purchase price for a zero-coupon bond
given the desired yield (i.e., annual rate of return using simple
interest)
- (5-2) Compute the effective interest rate (aka annual
percentage yield or APY) for a compound interest problem
- (5-2) Know that in problems with depreciation,
the value of r is negative
- (5-2) Know that in problems with inflation, the
value of r is positive
- (5-2) Compute the value of an investment in constant
dollars (aka inflation adjusted dollars)
- (5-3) Know that in an ordinary annuity the
payment is processed at the end of the compounding period after the
interest is computed
- (5-3) Know that the increasing annuity formula is used
for plans where the value of the fund increases (e.g., pension plans)
- (5-3) Solve the increasing annuity formula for future
value, present value, and/or payment (PMT)
- (5-3) Know that the decreasing annuity formula is used
for plans where the value of the fund decreases (e.g., loans, mortgages)
- (5-3) Solve the decreasing annuity formula for future
value, present value, and/or payment
- (5-3) Know how to use your calculator to assist in
solving annuity and compound interest problem
- (5-3) In the TI calculator, know: N = mt
I = APR in % P/Y = payments/year C/Y = m
- (5-3) Know that calculators use the accounting
convention that negative $$ flow from you to the bank; positive $$ flow from
the bank to you
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