Introduction to Mathematics in Personal Finance

This chapter is to help you understand some of the mathematics behind personal finances. This will not be a complete coverage of many of the topics related to personal finance, but should act as a guide in introducing you how savings accounts work to calculate the interest earned, finding the value of saving a fixed deposit monthly over a long time period, and calculating loan payments on a car or home mortgage.

We have to work with money every day. While balancing your checkbook or calculating your monthly expenditures on espresso requires only arithmetic, when we start saving, planning for retirement, or need a loan, we need more mathematics.

Learning Objectives

Below are the learning objectives for each section of the chapter.

6.1 Simple Interest

• Solve application problems using simple interest.
• Calculate interest amounts, total amounts, and determine unknown variables in simple interest scenarios.

6.2 Compound Interest

• Calculate the future value of an account for which interest is compounded $n$ times per year (discretely).
• Solve application problems involving compounding interest discretely.
• Calculate the future value of an account in applications for which interest is compounded continuously.
• Solve application problems involving compounding interest continuously.

6.3 Understanding Loans

• Determine total cost of a loan.

6.4 Amortized Loans

• Compute the monthly payment and interest costs for amortized loans.
• Find the amount that can be borrowed with a known payment amount for an amortized loan.
• Calculate the loan balance for an amortized loan.
• Create an amortized loan schedule.

6.5 Annuities

• Determine the future value in applications of an annuity.
• Determine payment values needed to achieve a future value in applications of an annuity.
• Determine the principal amount needed for a given payment in applications of a payout annuity
• Determine the payment needed for a given principal amount in applications of a payout annuity

6.6 Applications

• Solve various financial applications involving simple interest, compounding interest, and annuities.

Attributions

• This page contains modified content from “OpenStax Introductory Satistics” by Barbara Illowsky, Susan Dean. Licensed under CC BY 4.0.
• This page contains content by Robert Foth, Math Faculty, Pima Community College, 2024.