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Chapter 5

Mathematics of Finance

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Section 5.1

Simple Interest and Discount

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To furnish her new apartment, Maggie Chan borrowed $4000 at 3% interest from her parents for 9 months. How much interest will she pay?

Solution:

Example:

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Suppose that $5000 is invested at an annual interest rate of 3.1% compounded continuously for 4 years. Find the compound amount.

Solution:

Example:

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Section 5.2

Annuities, Future Value,

and Sinking Funds

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A business sets up a sinking fund so that it will be able to pay off bonds it has issued when they mature. If it deposits $12,000 at the end of each quarter in an account that earns 5.2% interest, compounded quarterly, how much will be in the sinking fund after 10 years?

Solution:

Example:

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Section 5.3

Annuities, Present Value,

and Amortization

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Jim Riles was in an auto accident. He sued the person at fault and was awarded a structured settlement in which an insurance company will pay him $600 at the end of each month for the next seven years. How much money should the insurance company invest now at 4.7%, compounded monthly, to guarantee that all the payments can be made?

Solution:

Example:

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