Financial Mathematics

Math 1140 Fall 2011

Exam 1 Study Guide

The best way to prepare for the exam is to read the textbook and class notes and do the homework. You should try to solve the examples by yourself and then check your work.

There will be three types of questions on the exam:

A) define or describe a concept (see the list of topics covered below)
B) problems similar to the textbook problems from your homework
C) extra credit problems like the bonus problems from homework

The type A questions will be selected from this list:

1. Define simple interest and give the formula for calculating it. Include definitions of all the symbols used in the formula.
2. Define the maturity value and give the formula used to calculate it.
3. Define the principal and give the formula for calculating it when given the maturity value, interest rate and term.
4. Describe an add-on loan and compare it with a simple interest loan.
5. Explain the discounting of a note.
6. Define the net present value and the internal rate of return.
7. Describe the Merchant’s Rule. Your answer should clearly explain what is used for the focal date.
8. Describe the US Rule.
9. Give the basic discount interest formula and define all the symbols.
10. Explain how the proceeds are calculated for a discount interest loan.
11. How is the amount calculated when proceeds, term and discount rate are given?
12. Define the coupon equivalent and give the formula.
13. Define the discount yield and give the formula.
14. Define the investment yield and give the formula.
15. Give the compound amount formula and define all the symbols used.
16. Give the present value at compound interest formula and define all the symbols used.