Topic 3 Financial Mathematics

Question 1

What is the formula for calculating simple interest?

Answer 1

Simple Interest = Principal × Rate × Time

Question 2

True or False: Compound interest is calculated only on the initial principal.

Answer 2

False

Question 3

Fill in the blank: The _________ is the amount of money borrowed or invested.

Answer 3

Principal

Question 4

What does the term ‘rate’ refer to in financial mathematics?

Answer 4

The percentage of interest charged or earned.

Question 5

If you invest $1000 at an interest rate of 5% for 3 years, what is the simple interest earned?

Answer 5

$150

Question 6

What is the formula for compound interest?

Answer 6

A = P(1 + r/n)^(nt)

Question 7

True or False: In compound interest, interest is earned on both the initial principal and the interest that has been added to it.

Answer 7

True

Question 8

What does ‘A’ represent in the compound interest formula?

Answer 8

The total amount after interest.

Question 9

Fill in the blank: The __________ period is the time interval at which interest is calculated in compound interest.

Answer 9

compounding

Question 10

What is the effective annual rate (EAR)?

Answer 10

The interest rate on an investment or loan that is adjusted for compounding over a given period.

Question 11

If a loan has a principal of $2000 and an interest rate of 6% compounded annually, what will the amount be after 5 years?

Answer 11

$2673.00

Question 12

True or False: The more frequently interest is compounded, the more total interest will be earned or paid.

Answer 12

True

Question 13

What is the formula to calculate the time required to double an investment at a given interest rate?

Answer 13

t = ln(2) / ln(1 + r)

Question 14

Fill in the blank: The __________ is the total cost of borrowing money, including interest and fees.

Answer 14

APR (Annual Percentage Rate)

Question 15

What is a loan amortization schedule?

Answer 15

A table that shows the breakdown of each payment into principal and interest over the life of the loan.

Question 16

True or False: The principal amount decreases with each payment in an amortized loan.

Answer 16

True

Question 17

What is the difference between nominal and real interest rates?

Answer 17

Nominal interest rates do not account for inflation, while real interest rates do.

Question 18

Fill in the blank: The __________ is the period after which a loan can be fully paid off without penalty.

Answer 18

maturity

Question 19

What does ‘P’ represent in the formula for compound interest?

Answer 19

The principal amount.

Question 20

If you invest $500 at an interest rate of 4% compounded quarterly for 2 years, what is the final amount?

Answer 20

$540.81

Question 21

True or False: The future value of an investment increases with a higher interest rate.

Answer 21

True

Question 22

What is the purpose of a savings account?

Answer 22

To save money while earning interest.

Question 23

Fill in the blank: The __________ is the amount of money you need to invest today to reach a specific future amount.

Answer 23

present value

Question 24

What is the formula for calculating present value?

Answer 24

PV = FV / (1 + r)^n

Question 25

If you want to have $1000 in 5 years and the interest rate is 5%, how much should you invest today?

Answer 25

$783.53

Question 26

True or False: Financial mathematics only deals with personal finance.

Answer 26

False

Question 27

What is the term for the percentage of the loan amount charged as interest?

Answer 27

Interest rate

Question 28

Fill in the blank: A __________ is a legal agreement between a lender and a borrower.

Answer 28

loan contract

Question 29

What is the term for the total amount of interest paid over the life of a loan?

Answer 29

Total interest

Question 30

True or False: The longer the loan term, the lower the monthly payments.

Answer 30

True

Question 31

What is a credit score?

Answer 31

A numerical representation of a borrower's creditworthiness.

Question 32

Fill in the blank: __________ are fees charged for late payments on loans.

Answer 32

Late fees

Question 33

What is the purpose of a budget?

Answer 33

To plan and track income and expenses.

Question 34

True or False: A balanced budget means that total income equals total expenses.

Answer 34

True

Question 35

What does 'liquid asset' mean?

Answer 35

An asset that can be quickly converted into cash.

Question 36

Fill in the blank: __________ is the amount remaining after all expenses have been deducted from income.

Answer 36

Net income

Question 37

What is an investment?

Answer 37

The act of allocating resources, usually money, in order to generate income or profit.

Question 38

True or False: Diversification reduces risk in an investment portfolio.

Answer 38

True

Question 39

What is the term for the rate of return on an investment expressed as a percentage?

Answer 39

Return on Investment (ROI)

Question 40

Fill in the blank: The __________ is a financial statement showing income and expenses over a period.

Answer 40

income statement

Question 41

What does 'debt-to-income ratio' measure?

Answer 41

The percentage of a person's income that goes toward servicing debt.

Question 42

True or False: Having a high debt-to-income ratio can affect your ability to borrow money.

Answer 42

True

Question 43

What is a mutual fund?

Answer 43

An investment vehicle that pools money from multiple investors to purchase securities.