Financial Arithmetic
Overview
Financial arithmetic is a crucial aspect of mathematics that finds extensive relevance in our daily lives. It encompasses various concepts and principles that are essential for understanding financial transactions, investments, and business operations. One fundamental concept within financial arithmetic is depreciation on fixed assets, which involves calculating the decrease in value of a tangible asset over time.
This calculation is vital for businesses to account for the wear and tear of their assets accurately. Amortization on capitalized assets is another key aspect of financial arithmetic. It revolves around spreading out the cost of an intangible asset over its useful life. Understanding how to compute amortization ensures that businesses can allocate expenses appropriately and reflect the true value of the asset in their financial statements. Annuities play a significant role in financial planning and investments.
They involve a series of regular payments or receipts made at equal intervals. Solving problems related to annuities requires a good grasp of the concepts of present value, future value, and the interest rates involved. These calculations are crucial for individuals planning for retirement or businesses managing cash flows. Moving on to the realm of stocks, debentures, and bonds, financial arithmetic enables investors to make informed decisions regarding these financial instruments.
Calculating interest on bonds and debentures is essential for understanding the returns these investments can generate over time. It involves considering factors such as the principal amount, interest rate, and the duration of the investment. Incorporating financial arithmetic principles into the analysis of stocks, debentures, and bonds allows investors to assess the risks and potential rewards associated with these securities accurately. It empowers individuals and organizations to make sound financial decisions based on quantitative data rather than speculation.
In conclusion, financial arithmetic provides a robust foundation for individuals and businesses to navigate the complexities of the financial world. By mastering concepts such as depreciation, amortization, annuities, and calculations related to various financial instruments, individuals can make informed decisions, plan for the future, and ensure financial stability and growth. The application of financial arithmetic principles is not only limited to financial professionals but is relevant to anyone seeking to enhance their financial literacy and make sound financial choices.
Objectives
- Calculate interest on bonds and debentures
- Solve problems on annuities
- Identify the relevance of financial arithmetic in daily life
- Apply financial arithmetic principles to stocks, debentures, and bonds
- Compute amortization on capitalized assets
- Calculate depreciation on fixed assets
Lesson Note
Not Available
Lesson Evaluation
Congratulations on completing the lesson on Financial Arithmetic. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Calculate the depreciation of a machine worth $10,000 with a salvage value of $2,000 over 5 years using the straight-line method. What is the annual depreciation expense? A. $1,600 B. $1,800 C. $2,000 D. $2,400 Answer: A. $1,600
- A company purchased a building for $500,000. If the building has a useful life of 20 years and a salvage value of $50,000, what is the annual depreciation using the straight-line method? A. $22,500 B. $23,000 C. $24,500 D. $25,000 Answer: C. $24,500
- An individual borrows $10,000 at an annual interest rate of 5%. If the interest is compounded annually, how much will be owed at the end of 3 years? A. $11,601.25 B. $11,762.50 C. $11,850.00 D. $12,002.20 Answer: A. $11,601.25
- If a company invests $5,000 in a savings account that offers an annual interest rate of 3%, how much money will be in the account after 5 years, compounded annually? A. $5,793.89 B. $5,831.44 C. $5,938.26 D. $6,022.50 Answer: B. $5,831.44
- What is the total future value of an ordinary annuity of $2,000 per year for 4 years, with an interest rate of 6% per year? A. $8,705.44 B. $8,812.00 C. $8,950.14 D. $9,024.00 Answer: A. $8,705.44
- Calculate the present value of an annuity that pays $1,500 each year for 8 years with an interest rate of 4% per annum. A. $9,756.34 B. $9,821.46 C. $9,904.21 D. $10,005.67 Answer: B. $9,821.46
- A company issued 5-year bonds with a face value of $100,000. If the annual interest rate is 8%, calculate the total interest the company will pay over the life of the bond. A. $30,000 B. $35,000 C. $40,000 D. $45,000 Answer: C. $40,000
- If a person buys 100 shares of a company at $50 each and the stock pays a dividend of $2 per share annually, what is the dividend yield? A. 3.5% B. 4% C. 4.5% D. 5% Answer: D. 5%
- What is the capital gain if an investor bought 500 shares of stock at $20 per share and sold them at $25 per share? A. $500 B. $1,000 C. $2,500 D. $5,000 Answer: B. $1,000
Recommended Books
|
Financial Mathematics and Its Applications
Subtitle
Principles for a Successful Financial Future
Publisher
Pearson Education
Year
2020
ISBN
9780134325676
|
|---|---|
|
|
Financial Mathematics: A Practical Guide for Actuaries and Other Business Professionals
Subtitle
Real-World Examples and Applications
Publisher
Routledge
Year
2018
ISBN
9780367353791
|
Past Questions
Wondering what past questions for this topic looks like? Here are a number of questions about Financial Arithmetic from previous years
Question 1 Report
Bello buys an old bicycle for ₦9,200.00 and spends ₦1,500.00 on its repairs. If he sells the bicycle for ₦13,400.00, his gain percent is
Question 1 Report
(a) A man purchased 180 copies of a book at N250.00 each. He sold y copies at N300.00 each and the rest at a discount of 5 kobo in the Naira of the cost price.
If he made a profit of N7,125.00, find the value of y.
(b) A trader bought x bags of rice at a cost C = 24x + 103 and sold them at a price, S = x220−33x.
Find the expression for the profit (i) If 20 bags of rice were sold,
(ii) calculate the percentage profit.