Financial Math Study Guide Notes #3

Financial Math NotesConsumer CreditI swear these things don't save my notes half the time D:Identify the costs, benefits, and sources of various types of credit.costs: interest rates, fees, and finance chargesbenefits: flexibility in payment, building credit history, purchasing powerSources: banks, credit unions, credit card companies, payday lenders, peer to peer lending.Calculate sales tax and computer total price with sales tax.Formula: sales tax= price x sales tax rateExample for a 8Total price = price + sales taxCompute total purchase price with interest/finance charges addedtotal price = purchase price + (principal x interest rate x time period)Example a 50 in finance charges, resulting in a total price of $1050Compute the costs involved in owning and buying an item such as an automobile, appliances, home, or furniture.Costs include purchase price, taxes, insurance, maintenance, repair costs, interest on loans, and potential depreciation.Example: owning a car involves monthly payments, gas, insurance, and maintenance fees.Compute finance charges for single payment loans.Formula = finance charge = principal x interest rate x time periodexample: a 25 in finance chargesCalculate installment loan costs such as amount financed, installment price, finance charge, and installment payment.To calculate the costs of an installment loan, the amount financed is the total amount borrowed after subtracting any down payment. The installment price is the total cost of the loan, including both principal and interest. The finance charge is the total amount of interest paid over the life of the loan, and the installment payment is the periodic payment made to repay the loan.Find the estimated annual percentage rate (APR) using a table.The estimated APR can be found using a table that compares the finance charge, amount financed, and loan term, or it can be calculated using a formula based on these factors.Compare costs of leasing and buying.When comparing the costs of leasing and buying, leasing usually involves lower monthly payments but requires returning the item at the end, while buying results in higher monthly payments but ownership once the loan is paid off.Find the finance charge and new balance using the average daily balance method.To find the finance charge and balance using the average daily balance method, you calculate the average of the daily balances over the billing cycle and apply the interest rate to that average balance.Read amortization tables to determine payment, interest and balance.Amortization tables help determine how each payment is split between interest and principal over time, which allows you to track the balance and interest paid.Compute Annual and monthly Percentage Rate for credit cards or loan.The annual percentage rate (APR) is the yearly cost of borrowing expressed as a percentage, while the monthly percentage rate is simply the APR divided by 12.Find the monthly mortgage payment.To find the monthly mortgage payment, you can use a formula that takes into account the loan amount, interest rate, and loan term.Find the total interest on a mortgage and the PITI.The total interest paid on a mortgage is the difference between the original loan amount and the total paid over the life of the loan. PITI stands for principal, interest, taxes, and insurance, and it refers to the full monthly mortgage payment.Prepare a partial amortization schedule of a mortgage.A partial amortization schedule shows how much of each payment goes toward interest and principal, with a remaining balance at the end of the schedule.Compare the total interest paid on a 15-year and 30-year fixed rate mortgage.When comparing a 15-year mortgage to a 30-year mortgage, the 15-year mortgage typically has higher monthly payments but results in lower total interest paid over the life of the loan, while the 30-year mortgage has smaller payments but more total interest.Define and compare the interest only, fixed rate, and adjustable-rate loans.Interest-only loans require payments only on the interest for a certain period, fixed-rate loans have consistent payments, and adjustable-rate loans fluctuate based on changes in interest rates.Data Analysis and ReportingUsing a data set, determine mean, median, and mode.Mean: Add all numbers, then divide by how many numbers there are.Median: Order numbers and pick the middle one. If even, average the two middle values.Mode: The value that appears most frequently.Distinguish between a simple average and a weighted average and calculate each.A simple average is calculated by adding up all the values and dividing by the number of values. A weighted average is similar but gives more importance to some values based on assigned weights.Identify and construct various types of graphs and charts.Graphs and charts can represent data in different ways, including bar charts, line graphs, pie charts, histograms, and scatter plots. Each type is used to visualize different types of relationships, distributions, and comparisons between data sets.Compile and arrange facts in organized manner for a table, chart, or figure.Compiling facts involves gathering relevant data and arranging it logically for presentation. This could include organizing values in columns for a table, or grouping data in categories for a chart or figure, ensuring clarity and ease of understanding.Explain or prepare written summary of findings expressed in tables, charts, graphs and figures.A written summary interprets data displayed in tables, charts, graphs, or figures by explaining key trends, relationships, and patterns. It should describe what the data shows, highlight important findings, and provide context or recommendations based on the data.Make predictions and decisions based on data and communicate their reasoning.Making predictions involves analyzing past and current data to forecast future trends or outcomes. Decisions can be made by identifying patterns in the data, and communicating the reasoning involves clearly explaining how the data supports the forecasted predictions or decisions.Explain the usage of statistics, probability, and systems of measurement in business.Statistics is used in business for data analysis, identifying trends, and making decisions based on data. Probability helps businesses assess risks and the likelihood of different outcomes. Systems of measurement provide standardized units to quantify and compare various aspects of business operations, ensuring accuracy and consistency in data collection and analysis.Interest RatesFigure rates, interest, and proceeds of bank discounts. In a bank discount, the interest is calculated on the face value (not the amount received), and the proceeds are the amount the borrower receives after the discount is subtracted.The formula for calculating the bank discount is: Calculate simple interest using the simple interest formula.Simple Interest=Principal(startmoney)×Rate(annual interest rate)×Time(years)Calculate any single variable – principal, interest rate, amount of interest, or time – given the other three.To calculate a single variable, rearrange the simple interest formula as neededExplain the process of discounting a promissory note and calculate the proceeds of a discounted promissory note.Discounting a promissory note involves calculating the present value of a future payment by subtracting the interest from the face value.Define maturity value and find the maturity value of a loan.Maturity Value is the total amount due at the end of a loan period, including both the principal and interest.Convert months to a fractional or decimal part of a year.one year is 12 monhthFind the future value and compound interest by compounding manually.Compound Interest=FV−PrincipalFind the interest compounded daily using a table.To find daily compounded interest using a table, first determine the daily interest rate (divide the annual interest rate by 365), and then use the table to find the interest based on the number of compounding periods (days). Mark-ups and DiscountsIdentify the various types of discounts.whatever lowers the price of the itemCalculate chain, trade, and cash discounts and net selling price of each kind of discount.Chain, trade, and cash discounts are applied sequentially, with the net selling price calculated by applying each discount to the original price in the specified order.Determine price of product after coupons and/or rebates.The price of a product after coupons and rebates is calculated by subtracting the coupon or rebate amount from the original selling price.Define and calculate markup and markdown.Markup is the amount added to the cost to determine the selling price, while markdown is the reduction from the original price, typically to encourage sales.Determine the rate of the markup or markdown.The rate of markup or markdown is calculated as a percentage of either the cost or the original selling price, depending on the context.Find the cost, markup or selling price when any two of the three are known.To find the unknown variable, use the formula Selling Price=Cost+Markup or rearrange it to solve for cost or markup.Find the amount of markdown, the reduced price and the percent of markdown of an item.The markdown amount is the difference between the original price and the reduced price, and the percent of markdown is calculated as the markdown amount divided by the original price, then multiplied by 100.Calculate markup based on cost.Markup based on cost is calculated as a percentage of the cost, using the formula Markup=Cost×Markup Percentage.Calculate markup based on selling price.Markup based on selling price is calculated by multiplying the selling price by the markup percentage, and subtracting the cost from the selling price.Convert markups from cost to selling price or from selling price to costs.Selling Price=Cost×(1+Markup Percentage)Cost=Selling Price/(1+Markup Percentage).PayrollCalculate pay based on piecework, salary, commissions, and graduated commissions.paid a fix amount for each unit of work is piecework, salary is hourly wage, commission is money based on how much you sell, and graduated is increasing based on sales thresholdsCalculate gross pay based on an hourly wage with an overtime policy.hourly wage times hours worked and add overtimeCalculate an employee’s net earnings per paycheck.'netpay is gross pay minus deductionsPrepare an individual payroll or earnings record.includes name, pay period, gross earnings, deductions, overtime pay, net pay, employer contributions, and year to date totalsFind federal tax withholding per paycheck using IRS tax tables and IRS percentage method.tax tables is based on income, filing status, and allowances, percentage is based on income bracketsCalculate Social Security Tax and Medicare tax per paycheck.its based on a wage base limit, Medicare is 1.45%Find an employer’s total deposit for withholding tax, social security tax, and Medicare tax per pay period and quarterly.total deposit is matching employeeCalculate federal and state unemployment taxes.typically 6% on first 7000 of employees income, state unemployment varies by stateCompute business expenses related to employees: benefits, disability insurance, travel, and employee training.benefits are things like health insurance, travel is work based travel, employee is costs for training programs, disability is employee disability insurance costsInvestmentsDefine investment terms such as risk, yields, P/E ratio, and rate of return.risk is the potential to lose money, yields is the money from an investment, P/E is price to earnings ratio, and rate of return is the gain or loss of the investment over a period of timeExplain the effect compounding has in an investment and lending environment.Compounding increases the money from an investment because the yields from the investment also accumulate and make more money.Compare investment decisions and make mathematical comparisons of investment alternatives.to compare them you use expected return, risk, and liquidityCalculate the net present value of an investment such as certificate of deposit, savings account, stocks, and mutual funds.net present value calculates teh present value of a series of future cash flows, accounting for the time value of moneyDetermine stock yield, earnings per share, and price-earnings ratio.stock yield is the income people recieve from their investments, eanings per share is a companies profit divided by the number of outstanding shares of its stock, P/E is price per share over the earnings per shareCompute the anticipated rate of return on specific investments and savings accounts using various factors such as simple or compound interest, dividends, fees, etc.simple interest is principal x annual interest rate x time in years, compound interest is principal times (1+r/n)^nyTaxesDefine tax terms such as standard deduction, itemized deductions, exemptions, and various types of taxes such as income tax, sales tax, and property tax.standard deductions are fixed amounts that taxpayers can deduct from taxable income, such as filing status, itemized are specific expenses that axpayers can deduct such as charitable contributions or medical expenses, exemtions are amounts that you can deduct for your your immediate family, income tax is imposed by government on individual or buisiness profits, sales tax is imposed by government for consumption of items, property is tax imposed on property.Define and calculate property taxes based on local percentages/guidelines.property tax is the assessed value of the property times the tax rateCalculate sales tax on purchase.sales tax is the purchase price items the sales tax rateComplete a 1040 EZ Federal Income Tax Form with a W2 form.fill out personal information, transfer the income and federal income tax from W-2 form, claim standard deductions, calculate taxable income, determine ax due, and file the formPrepare a 1040 A using W2 and 1099 Interest form.fill out personal information, report income, deduct any deductions, claim tax credits, calculate total tax, determine refund or amount dueComplete basic tax forms such as W2 and W4.are wage and tax statements that employers given to employers by employers, personal, W-4 is a form that employees use to tell their employer to tell them how much federal income tax to withhold from their paycheck.Bank RecordsCompare different types of banking options such as credit unions and other banks.credit unions are nonprofit that are owned by members, traditional banks are for profit that are owned by shareholdersIdentify the types of banking services and their costs for meeting various needs.checking accounts are for everyday transition, savings are for saving money over time with interest, certificates of deposit are timed deposits offering a fixed interest rate, credit cards are credit, ATMs are used for accessing cashWrite a check, prepare deposits, and prepare withdrawal slips.need date, person you're paying, amount of money in cash and words, and your signature for check. deposits need deposit slips, withdrawal needs account number, amount to withdraw, and signatureMaintain a check register including proper procedures for ATM and automatic payment withdrawals.records all transitions, such as date, description, amount, and balance, when using atm record transition immediately, automatic payment withdrawals are for automatic bill paymentsReconcile a bank statement.review bank statement, look for discrepancies, outstanding checks and deposits in transit, fees, and match balancesUtilize online banking and bill payment options securely.use strong passwords, and confirm payments after they are processedInsuranceIdentify and compare types of insurance.auto insurance is for vehicles, health is for medical expenses, homeowners insurance is for damage to home, life is payout in case you die, and disability replaces a portion of your income if you can't work because of illnessRead insurance premium charts and determine the cost of a particular policy.younger people typically pay lower premiums, women have lower premiums sometimes because they live longer on average, geographical area can influence rates, higher coverage generally means a higher premium, and deductibles can l9ower your premium, but increase out of pocket expenses when filing claimsAnalyze insurance proposals for auto and determine the cost of compulsory insurance and costs of optional coverage.compulsory insurance is the minimum required by law, like liability insurance, personal injury protection, or uninsured/underinsured motorist coverageAnalyze health insurance premiums and calculate based on selected options.vary depending on plan type, coverage level, age, location, health status, and whether its a family or individual planCompute the costs and benefits of specific insurance plans.estimate the total cost, consider the benefits, compare with alternatives, and determine the value of coverageAnalyze deductibles and their effect on policy.higher deductibles mean lower premiums, and lower deductibles are higher premiums but less out of pocket when a claim is filedDepreciationDistinguish between straight-line method, declining balance method, sum of the year’s digits method, and MACRS method.straight line depreciation is depreciated by the same amount each year, declining balance is where the depreciation is twice as much in the first year and reduces as the book value decreases, sum of the year's digits is wehere depreciation is higher in the earlier years and decreases over time, but based on the sum of the digits of the asset's useful life remaining life/sumoftheyear'sdigits times (cost of asset- residual value, and MACRS is used for tax purposes in the USDetermine straight-line depreciation for a year.cost of asset - residual life / useful lifeDetermine the depreciation expense on plant assets by the sum of the year’s digits and declining balance.for each year calc the depreciation expense using the book value at the beginning of the year, and declining balance is 2x in the first year as straight line depreciationDetermine modified accelerated cost recovery system depreciation.determine the asset's cost and class life, look up the applicable percentage from the irs macrs table for the class life, and apply the percentage to the asset's cost each yearUse the straight-line depreciation method to find the value of an asset.depreciate by the same amount each year until you reach the amount of yearsInventoryDetermine the cost and value of inventory.the cost of getting the goods into the condition and place to sellDetermine rate of inventory turnover.it measures how many times a company sells and replaces its inventory is a given period inventory turnover = costofgoodssold/average inventoryDetermine the value of ending inventory using Average Cost (weighted average), FIFO, and LIFO.first in first otu assumes that teh first units purchased are the first ones sold and last in first out assumes the last units purchased are the first ones soldRatios and ProportionsDefine the terms ratio and proportion.a relationship between two numbers that shows how many times the first number contains the second number, and a proportion is an equation that states two ratios are equalUse ratios to evaluate profitability, efficiency, and leverage.ROA is netincome/total assets , return on equity is netincome/shareholder's equity. Efficientcy ratio is asset turnover ration = revenue/total assets, inventory turnover is costofgoodssold/averageinventory. debt ratio is total debt/total assets and debt to equity ratio is total debt/shareholder's equityCreate ratios to express the quantitative relationship between two amounts.divide one by the otherUse ratios, proportions, and percent's to solve problems involving financial calculations.are used to compare quantities and solve for unknownsAnalyze and explain methods for solving problems involving proportions such as scaling and finding equivalent ratios.scaling i increasing or decreasing quantities while keeping the ratio the same