Selected topics in finite mathematics/Managing your money

Objectives

Understanding the basics of finance and interest and applying them to real life situations.

Details

• A checking account is a bank account in which the owner can deposit or withdraw money at any time. Writing checks or using a debit card are also ways to access funds.

• A savings account is a bank account that enables the owner to deposit or withdraw money at any time.

• A CD is a bank account that prevents the owner from depositing or withdrawing money until a certain maturity date. Interest for these accounts is typically higher.

• Interest is a compensation paid by the bank for the use of your money. These can be reported in two different ways. A Nominal Rate, also called APR, is the sum of 12 monthly interest payments (if compounded monthly). Or as a Yield Rate, also called APY, which is the rate of change over the course of a year.

• If i is an APR, then FV=PV(1+i/m)^(nm).
• If i is an APY, then FV=PV(1+i)^n.

Examples

[There is 1% compounded interest every year on an account with a $100 initial deposit, so after a year, the account will hold $101 if no additional deposits or withdrawals are made.]

[Give an example of benefits associated with a checking account?]

[Give an example of fees associated with a savings account?]

[2% apy for two years after a $10000 deposit= $1404]

Homework

If $1,000 is invested at 2% APY for 3 years, how much is available after 3 years?

Solution $1061.21

If $1,000 is invested at 2% APR for 3 years (compounded monthly), how much is available after 3 years?

Solution $1061.78]

What is the future value of $5,000 invested at 3% APY for 7 years?

Solution $6149.37]

What is the present value of a 4-year investment that matures for $2,000?

Solution [You can add the solution to the problem here!]

If you need access to your money after 3 years, which is a better option? A 3-year CD at 2% interest or 4-year CD at 2.1% interest?

Solution [You can add the solution to the problem here!]

If an account has 3% APR compounded monthly, what is its APY?

Solution [You can add the solution to the problem here!]

If an account has 3% APR compounded daily, what is its APY?

Solution [You can add the solution to the problem here!]