# Ch 10: Concepts of Financial Mathematics

### About This Chapter

## Concepts of Financial Mathematics - Chapter Summary

How do you calculate interest rate and loan payments? What do terms like 'depreciation' and 'perpetuity' mean? Which formula helps to determine compounding interest? This chapter answers these questions and more.

In these lessons, you'll find examples of equations and formulas that help to simplify this material and ensure that you more easily retain this information. Each relevant term is also defined before calculations and formulas are discussed. Once you have completed your review of this chapter, you should be able to:

- Apply methods for calculating depreciation expense
- Use formulas for simple interest rate and internal rate of return
- Understand compounding interest formulas
- Calculate real interest rate, net present value, future value, monthly loan payments and mortgage amortization
- Solve reducing balance loan problems
- Find the present value of an annuity
- Define perpetuity and explain how to calculate it

In each short lesson, you'll find expert instruction and detailed examples and illustrations. Lessons take only 5-10 minutes to review and are accessible at any time, from any device, so studying can fit into the busiest of schedules. Determine how much you have learned using brief self-assessment quizzes, and track your progress as you move through this chapter on your handy Dashboard.

### 1. How to Calculate Depreciation Expense: Definition & Formula

As property wears out, it loses some of its value, which is called depreciation. In this lesson, we will learn three of the most common methods of calculating depreciation expense, including the straight-line method.

### 2. How to Find Simple Interest Rate: Definition, Formula & Examples

When we borrow a certain sum of money over a period of time, we agree that we will pay it back, along with a fee, known as the interest owed. Similarly, when we invest a sum of money in a savings account, the account earns us interest. This lesson will show you how to calculate a certain type of interest called simple interest.

### 3. Compounding Interest Formulas: Calculations & Examples

Compound interest is a great way to have your money work for you. In this lesson, find out the formula for calculating compound interest and practice using the formula with several examples.

### 4. Nominal Interest Rate: Definition & Equation

Understanding interest rates is a vital part of personal and business financial management. In this lesson, you'll learn about the nominal interest rate and how to calculate it from different perspectives. A short quiz follows the lesson.

### 5. Real Interest Rate: Definition & Calculation

An investment that pays 10% interest doesn't guarantee that you'll have a 10% increase in purchasing power. In this lesson, you'll learn about the real interest rate and how to calculate it.

### 6. How to Calculate Internal Rate of Return: Definition & Formula

In this lesson we will be discussing internal rate of return. We will start by defining the concept. We will then look at the formula used to calculate internal rate of return. Finally, we will complete the lesson by using the formula to calculate the internal rate of return for a project.

### 7. How to Calculate Net Present Value: Definition, Formula & Analysis

The value of money changes over time. If you spoke to your parents or grandparents about what things cost when they were children, you will see a big difference. This concept is called net present value.

### 8. How to Calculate Future Value: Formula & Example

This lesson will give an overview of and explain the future value formula. Also in this lesson, various examples will be explored using the future value formula.

### 9. Calculating Monthly Loan Payments

Watch this video lesson and learn how you can calculate your monthly payment when you are thinking of purchasing a car. Okay, you can also use this formula whenever you are getting a loan!

### 10. How to Calculate Mortgage Amortization

In this lesson, we will briefly discuss what an amortizing loan is and show how to calculate a borrower's monthly payment on a fixed-rate mortgage using the loan information.

### 11. How to Solve Problems Involving Reducing Balance Loans

Software can be used to solve problems involving reducing balance loans. For instance, Microsoft Excel has a built-in amortization function, which can easily calculate payments on a loan with a fixed payment schedule.

### 12. How to Calculate the Present Value of an Annuity

After watching this video lesson, you should know how to calculate how much an annuity is worth at any given time. Learn how to use the formula to calculate the current worth of an annuity that you may have.

### 13. What is a Perpetuity? - Definition & Formula

This lesson defines and explains what a perpetuity is. It also provides examples of perpetuities and introduces a formula to calculate the present value of a perpetuity.

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### Other Chapters

Other chapters within the VCE Further Mathematics: Exam Prep & Study Guide course

- Population & Samples
- Categorical Data Representation
- Numerical Data Representation
- Data Distribution
- Correlation & Causation in Math
- Non-Causal Relationships in Statistics
- Linear Relationships
- Time Series Data
- Recursion & Financial Modeling
- Matrices Overview
- Graphs & Networks
- Paths & Circuits
- Problem Solving With Networks
- Geometric Solids
- Measurement & Trigonometry
- Spherical Geometry
- Applications of Spherical Geometry
- Graphs & Relations
- Linear Programming Overview
- VCE Further Mathematics Flashcards