Financial Math Study Guide Notes #4

Financial Math NotesConsumer CreditIdentify the costs, benefits, and sources of various types of credit.Revolving Credit: line of credit over time, may require regular minimum payment. Installment: Fixed payment scheduled for a specific duration. Open credit: borrow up to maximum amount and pay in full at end of each period. Calculate sales tax and computer total price with sales tax.Divide sales tax percentage by 100, multiply by retail price. Total = price (1+tax rate)Compute total purchase price with interest/finance charges addedTotal=P(1+(r/100)(t))Compute the costs involved in owning and buying an item such as an automobile, appliances, home, or furniture.total cost, installment, taxes, ultilities, memberships, maintenance. Compute finance charges for single payment loans.Finance charge=P(r/100)(t)Calculate installment loan costs such as amount financed, installment price, finance charge, and installment payment.Find the estimated annual percentage rate (APR) using a table.interest per $100=finance charge / amount financed (100)Compare costs of leasing and buying.Leasing cost less on monthly basis. There is mileage restrictions. Upfront costs, lease payments, lost interest. Buying have higher monthly payment. Adding the upfront costs lost interest and market value of vehicle. Find the finance charge and new balance using the average daily balance method.Take sum of daily balances and divide by number of days in the billing cycle. Read amortization tables to determine payment, interest and balance.Compute Annual and monthly Percentage Rate for credit cards or loan.APR=((interest charges+fees)/loan amount / number of days in loan term (365))100Find the monthly mortgage payment.m=P(r)(1+r)^n/(1+r)^n-1Find the total interest on a mortgage and the PITI.principal loan amount(interest rate)(loan term in years)=interestPrepare a partial amortization schedule of a mortgage.Multiply principal balance by interest, divide total month, subtract interest fee from monthly payment. Compare the total interest paid on a 15-year and 30-year fixed rate mortgage.Higher monthly payments with less interest rate. Total amount is lower. Define and compare the interest only, fixed rate, and adjustable-rate loans.Fixed rate mortgage has interest rate that does not change. Interest only require you to pay only interest rate for specific amount of time. Adjustable-rate loans can increase or decrease in tandem with broader interest rate trends. Data Analysis and ReportingUsing a data set, determine mean, median, and mode.1, 1, 2, 3, 4, 5, 6, 6, 6, 7, 8mean: 4.45median: 5mode: 6Distinguish between a simple average and a weighted average and calculate each.Simple average: adding all values in a data set and divide the sum by number of values.weighted average: Each value in the data set is assigned a weight, indicating importance. Multiply each number by their weight and add the products, divide by total data numbers. Identify and construct various types of graphs and charts.Bar graph, Pie chart, Line graph, histogram, scatter plot, box plot. Compile and arrange facts in organized manner for a table, chart, or figure.Ensure data accuracy, arrange with logical order (chronological etc.), correct labeling, provide titles for charts and tables. Explain or prepare written summary of findings expressed in tables, charts, graphs and figures.Introduce the data, summarize the table findings, interpret the charts, analysis of charts, key findings, make conclusions. Make predictions and decisions based on data and communicate their reasoning.Review the data, examine trends, patterns, and outliers. Make predictions based on the trends and explain reasoning. Consider the alternatives and make adjustments. Explain the usage of statistics, probability, and systems of measurement in business.Statistics: Companies use statistics to analyze customers and market trends. Can summarize data of the business and be better for analysis. Probability: Companies use to evaluate the risks in decision making. Can optimize the intended outcome and reduce risks.Systems of measurement: Companies used to track productivity and efficiencies. Can measure product quality and customer feedbacks. Interest RatesFigure rates, interest, and proceeds of bank discounts.Interest= P(r)(t)Calculate simple interest using the simple interest formula.I=PrtCalculate any single variable – principal, interest rate, amount of interest, or time – given the other three.I=PrtExplain the process of discounting a promissory note and calculate the proceeds of a discounted promissory note.Discount = Face Value (r)(t) Define maturity value and find the maturity value of a loan. Maturity Value = P + interest Amount that will be paid at end of the financial instrument. Convert months to a fractional or decimal part of a year.Number of months/12Find the future value and compound interest by compounding manually.P(1+r/n)^ntFind the interest compounded daily using a table.Mark-ups and DiscountsIdentify the various types of discounts.percentage discount, dollar amount discount, seasonal discounts, BOGO, cash, trade, bulkCalculate chain, trade, and cash discounts and net selling price of each kind of discount.Determine price of product after coupons and/or rebates.subtract percentage or fixed amount from original price then add taxesDefine and calculate markup and markdown.markup- amount added to the cost price of a product to determine its selling pricemarkdown- reduction in the selling price of a product, amount subtracted from originalDetermine the rate of the markup or markdown.markdown percentage = markup amount/cost price (100)Find the cost, markup or selling price when any two of the three are known.Find the amount of markdown, the reduced price and the percent of markdown of an item.Calculate markup based on cost.markup = cost price (markup percent/100)Calculate markup based on selling price.markup amount = selling price - cost price Convert markups from cost to selling price or from selling price to costs.markup percentage(selling price)= markup percentage (cost) / 1+(markup percentage (cost) / 100)PayrollCalculate pay based on piecework, salary, commissions, and graduated commissions.Piecework: Number of units produced(rate per unit)Salary: Pay per period= annual salary/number of pay periodscommissions: pay= sales amount(commission rate)Graduated: use sales tiersCalculate gross pay based on an hourly wage with an overtime policy.Regular= hour pay(hours worked)Overtime= hour pay(1.5)(Hours overtime)Calculate an employee’s net earnings per paycheck.Net= gross- deductionPrepare an individual payroll or earnings record.Employee information, pay period, earning, deductions, and net pay. Find federal tax withholding per paycheck using IRS tax tables and IRS percentage method.Use W-4 formTax table: match gross and filing statuesPercentage: subtract withholding allowance from gross pay and apply percentage rate. Calculate Social Security Tax and Medicare tax per paycheck.Social security: gross pay(6.2%)Medicare: gross pay(1.45%)Find an employer’s total deposit for withholding tax, social security tax, and Medicare tax per pay period and quarterly.Withholding tax= sum of state and federal income taxAdd withholding tax, social security tax, and Medicare taxCalculate federal and state unemployment taxes.Federal: gross pay(0.6%)Compute business expenses related to employees: benefits, disability insurance, travel, and employee training.Benefit: contribution of employers disability insurance: per employee(number of employees) employee training: Course fee + materials + employee time costInvestmentsDefine investment terms such as risk, yields, P/E ratio, and rate of return.Risk: The potential for loss in investments. Yields: Income from an investment over a period of time. P/E ratio: Ratio of a company's current share price to per-share earnings. Rate of return: The gain or loss of Explain the effect compounding has in an investment and lending environment.Compare investment decisions and make mathematical comparisons of investment alternatives.Calculate the net present value of an investment such as certificate of deposit, savings account, stocks, and mutual funds.Determine stock yield, earnings per share, and price-earnings ratio.Compute the anticipated rate of return on specific investments and savings accounts using various factors such as simple or compound interest, dividends, fees, etc.