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The Handbook of Essential Mathematics
The Handbook of Essential Mathematics
The Handbook of
Essential Mathematics
Formulas, Processes, and Tables
Plus Applications in Personal Finance
X
XY
X2
Y2
XY
(X + Y)2=X2 + 2XY + Y2
Compilation and Explanations: John C. Sparks
Editors: Donald D. Gregory and Vincent R. Miller
For Pubic Release: Distribution Unlimited
The Handbook of
Essential Mathematics
Air Force Publication 2006
For Public Release: Distribution Unlimited
Forward
Wright-Patterson Air Force Base (WPAFB) has enjoyed a
lengthy and distinguished history of serving the Greater-Dayton
community in a variety of ways. One of these ways is through the
WPAFB Educational Outreach (EO) Program, for which the Air
Force Research Laboratory (AFRL) is a proud and continuous
supporter, providing both technical expertise (from over 2000
practicing scientists and engineers) and ongoing resources for the
various programs sponsored by the WPAFB Educational
Outreach. The mission of the WPAFB EO program is
To form learning partnerships with the K-12 educational
community in order to increase student awareness and excitement
in all fields of math, science, aviation, and aerospace; ultimately
developing our nations future scientific and technical workforce.
In support of this mission, the WPAFB EO aspires to be
the best one-stop resource for encouragement and enhancement
of K-12 science, math and technology education throughout the
United States Air Force. It is in this spirit that AFRL offers The
Handbook of Essential Mathematics, a compendium of
mathematical formulas and other useful technical information that
will well serve both students and teachers alike from early grades
through early college. It is our sincere hope that you will use this
resource to either further your own education or the education of
those future scientists and engineers so vital to preserving our
cherished American freedoms.
Introduction
Formulas! They seem to be the bane of every beginning
mathematics student who has yet to realize that formulas are
about structure and relationshipand not about memorization.
Granted, formulas have to be memorized; for, it is partly through
memorization that we eventually become unconsciously
competent: a true master of our skill, practicing it in an almost
effortless, automatic sense. In mathematics, being unconsciously
competent means we have mastered the underlying algebraic
language to the same degree that we have mastered our native
tongue. Knowing formulas and understanding the reasoning
behind them propels one towards the road to mathematical
fluency, so essential in our modern high-tech society.
The Handbook of Essential Mathematics contains three
major sections. Section I, Formulas, contains most of the
mathematical formulas that a person would expect to encounter
through the second year of college regardless of major. In
addition, there are formulas rarely seen in such compilations,
included as a mathematical treat for the inquisitive. Section I also
includes select mathematical processes, such as the process for
solving a linear equation in one unknown, with a supporting
examples. Section II, Tables, includes both pure math tables
and physical-science tables, useful in a variety of disciples ranging
from physics to nursing. As in Section I, some tables are included
just to nurture curiosity in a spirit of fun. In Sections I and II, each
formula and table is enumerated for easy referral. Section III,
Applications in Personal Finance, is a small textbook within a
book where the language of algebra is applied to that everyday
financial world affecting all of us throughout our lives from birth to
death. Note: The idea of combining mathematics formulas with
financial applications is not original in that my father had a similar
type book as a Purdue engineering student in the early 1930s.
I would like to take this opportunity to thank Mr. Al
GiambroneChairman of the Department of Mathematics, Sinclair
Community College, Dayton, Ohiofor providing requiredmemorization formula lists for 22 Sinclair mathematics courses
from which the formula compilation was partially built.
John C. Sparks
March 2006
Dedication
The Handbook of Essential Mathematics is dedicated to all
Air Force families
O Icarus
I ride high...
With a whoosh to my back
And no wind to my face,
Folded hands
In quiet rest
Watching...O Icarus...
The clouds glide by,
Their fields far below
Of gold-illumed snow,
Pale yellow, tranquil moon
To my right
Evening sky.
M
5
Table of Contents
Section I: Formulas with
Select Processes
Index to Processes
Page 06
1. Algebra
13
13
14
15
16
18
19
20
21
22
24
26
27
27
28
30
31
32
33
34
36
37
39
40
41
41
42
43
44
44
44
45
46
47
47
49
50
52
53
54
55
3. Trigonometry
57
65
65
65
66
67
67
68
68
69
70
70
71
72
73
73
75
75
76
77
78
80
87
87
88
89
90
91
92
94
2. Physical Sciences
94
96
96
97
97
97
101
102
103
104
105
106
106
107
108
108
109
109
112
113
114
118
118
120
122
124
129
135
135
138
142
147
151
153
153
162
173
183
185
185
187
188
191
Appendices
A. Greek Alphabet
200
B. Mathematical Symbols
201
204
10
Section I
Formulas with
Select Processes
11
Index to Processes
Process
Where in Section I
12
1.8.11
1.9.14
1.10.10
1.11.6
1.12.0
1.14.9
1.15.12
1.16.8
1.16.9
1.18.6
1.19.3
1.19.6
1.19.0
1.22.3
1.22.4
2.12.6
5.11.7
7.3.6
1. Algebra
1.1.
What is a Variable?
In the fall of 1961, I first encountered the monster called
123
769
13
1.2.
Field Axioms
Addition +
Multiplication .
a + b is a unique real
a b is a unique
number
real number
Commutative
a+b = b+a
a b = ba
Associative
( a + b) + c =
a + (b + c)
(ab)c =
a (bc)
0 a+0 = a
1 a 1 = a
Properties
Closure
Identity
a a + (a) = 0
(a) + a = 0
Inverse
Distributive or
Linking Property
a 0 a
1
a =1
a
a (b + c) = a b + a c
a = b&b = c a = c
Transitivity
14
1
=1
a
1.3.
Divisibility Tests
Divisor
2
3
4
5
6
7
8
9
10
11
12
13
14
15
17
19
23
29
31
37
15
1.4.
1.4.1.
Definitions:
Subtraction:
Division:
a b a + (b)
1
a b a
b
1.4.2.
Alternate representation of a b : a b
1.4.3.
1.4.4.
a
b
0
=0
a
a
is undefined
0
0
is undefined
0
a
= c a = b c for all real numbers a
b
a
If
= c , then a = 0 c a = 0 for all real numbers a ,
0
an algebraic impossibility
1.4.5.
x 2 = xy
x 2 y 2 = xy y 2
( x y )( x + y ) = y ( x y )
Dividing both sides by x y where x y = 0 gives
x + y = y 2y = y 2 = 1.
The last equality is a false statement.
16
1.4.6.
1.4.7.
( a ) b = ( a b)
a (b) = (a b)
( a) (b) = (a b)
Multiplication of a b
Sign of b
Sign of a
Plus
Minus
Plus
Plus
Minus
Minus
Minus
Plus
1.4.8.
(4) (5) = 20
(4) (4) = 16
(4) (3) = 12
(4) (2) = 8
(5) (4) = 20
(5) (3) = 15
(5) (2) = 10
(5) (1) = 5
(4) (1) = 4
(4) (0) = 0
(4) (1) = 4
(4) (2) = 8
(4) (3) = 12
(4) (4) = 16
(4) (5) = 20
(5) (0) = 0
(5) (1) = 5
(5) (2) = 10
(5) (3) = 15
(5) (4) = 20
(5) (5) = 25
(5) (6) = 30
17
1.5.
Let
a
c
and
be fractions with b 0 and d 0 .
b
d
a c
= ad = bc
b d
a ac ca
1.5.2. Fractional Equivalency: c 0 =
=
b bc cb
a c a+c
1.5.3. Addition (like denominators):
+ =
b b
b
1.5.1.
Fractional Equality:
1.5.4.
1.5.6.
a c ad cb ad + cb
+ =
+
=
b d bd bd
bd
Note: bd is the common denominator
a c ac
1.5.5. Subtraction (like denominators):
=
b b
b
1.5.7.
1.5.8.
1.5.9.
1.5.10.
1.5.11.
a c ad cb ad cb
=
=
b d bd bd
bd
a c ac
Multiplication: =
b d bd
a c a d ad
Division: c 0 = =
b d b c bc
a
a c a 1 a
Division (missing quantity):
c = = =
b
b 1 b c bc
a
b = a c = ad
Reduction of Complex Fraction:
c b d bc
d
a a
a
Placement of Sign: =
=
b
b
b
18
1.6.
Partial Fractions
P( x)
A
B
=
+
( x a )( x b) x a x b
The numerators A, B are given by
A=
1.6.2.
P(a)
P(b)
,B =
a b
ba
P( x)
A
B
C
=
+
+
( x a )( x b)( x c) x a x b x c
The numerators
A, B, C are given by
P(a )
P(b)
,B =
,
(a b)(a c)
(b a )(b c)
P (c )
C=
(c a )(c b)
A=
1.6.3.
P( x)
n
(x a )
i
=
i =1
Ai
with Ai =
x ai
P(ai )
n
(a
j =1
j i
i =1
19
aj)
1.7.
1.7.1.
Addition: a a
= a n+ m
an
nm
1.7.2. Subtraction: m = a
a
n m
nm
1.7.3. Multiplication: ( a ) = a
1.7.4.
1.7.5.
p n
n
mn
b pn
an
a
1.7.6. Distributed over a Simple Quotient: = n
b
b
n
am
a mn
1.7.7. Distributed over a Complex Quotient: p = pn
b
b
1
1.7.8. Definition of Negative Exponent:
an
n
a
1
a an
1
1.7.10. Definition when No Exponent is Present: a a
0
1.7.11. Definition of Zero Exponent: a 1
1.7.9.
16 = 32 2 = 2 2 2 2 = 2 4
8 = 16 2 = 2 2 2 = 2 3
4 = 8 2 = 22 = 2
2 = 42 2
1
2
1
4
1
8
1
16
1 = 2 2 20
20
= 1 2 =
1
21
= [12 ] 2 =
= [14 ] 2 =
= [18 ] 2 =
2 1
1
22
2 2
1
23
2 3
1
24
2 4
1.8.
1.8.1.
Basic Definitions:
a a n and
1.8.2.
Complex Radical:
am = a n
1.8.3.
Associative:
1.8.4.
Simple Product:
1.8.5.
Simple Quotient:
1.8.6.
Complex Product:
1.8.7.
Complex Quotient:
1.8.8.
Nesting:
a a a2
(n a )m = n a m = a n
n
a n b = n ab
a n a
=
b
b
a m b = nm a mb n
a nm a m
=
m
bn
b
1.8.9.
n m
a = nm a
am
a
=
n
b
b anm
b
n
am
bn a n m
a
a
a (b c )
=
b + c (b + c )(b c )
a
a (b c )
=
b2 c
b+ c
a+ c
a2 c
Numerator:
=
b
b( a c )
1.8.12. Definition of Surd Pairs: If a
b is a radical expression,
then the associated surd is given by a m b .
21
1.9.
Factor Formulas
1.9.1.
1.9.2.
1.9.3.
1.9.4.
= a(b + c) = (b + c)a
ab + ac + db + dc =
(b + c)a + d (b + c) =
(b + c)a + (b + c)d =
(b + c)(a + d )
(a + b) 2 c 2 = (a + b + c)(a + b c)
2
2
1.9.5. Sum of Squares: a + b = ( a + bi )(a bi ) i complex
2
2
2
1.9.6. Perfect Square: a 2ab + b = (a b)
1.9.7.
General Trinomial:
x 2 + (a + b) x + ab =
( x 2 + ax) + (bx + ab) =
( x + a ) x + ( x + a )b =
( x + a )( x + b)
1.9.8.
a 4 b 4 = (a 2 b 2 )(a 2 + b 2 )
a 4 b 4 = (a b)(a + b)(a 2 + b 2 )
1.9.11. Power Reduction to an Integer:
a 4 + a 2 b 2 + b 4 = (a 2 + ab + b 2 )(a 2 ab + b 2 )
1.9.12. Power Reduction to a Radical:
x 2 a = ( x a )( x + a )
1.9.13. Power Reduction to an Integer plus a Radical:
a 2 + ab + b 2 = (a + ab + b)(a ab + b)
22
M , N such that
M +N =b
.
M N = ac
Step 2: Substitute for b ,
ax 2 + bx + c =
ax 2 + ( M + N ) x + c
Step 3: Factor by Grouping (1.9.2)
ax 2 + Mx + Nx + c =
M N
(ax 2 + Mx) + Nx +
=
a
M
M
ax x + + N x + =
a
a
x + (ax + N )
a
a : MN = 2 (7) = 14 & M + N = 13
M = 14, N = 1
2
a : 2 x 2 3x 7 =
2 x 2 14 x + x 7
3
a : 2 x ( x 7) + 1 ( x 7) =
( x 7)(2 x + 1)
23
1.10.1. Addition: A + C = B + C
1.10.2. Subtraction: A C = B C
1.10.3. Multiplication: A C = B C
A B
= provided C 0
C C
n
n
Exponent: A = B provided n is an integer
1 1
= provided A 0, B 0
Reciprocal:
A B
C D
Means & Extremes: =
CB = AD if A 0, B 0
A B
Zero Product Property: A B = 0 A = 0 or B = 0
1.10.4. Division:
1.10.5.
1.10.6.
1.10.7.
1.10.8.
24
b
from which the solution is easily deduced.
a
a : 4{3[7( y 3) + 9] + 2( y 9)} 1 = 5( y 1) 3
4{3[7 y 21 + 9] + 2 y 18} 1 = 5 y 5 3
4{3[7 y 12] + 2 y 18} 1 = 5 y 8
4{21y 36 + 2 y 18} 1 = 5 y 8
4{23 y 54} 1 = 5 y 8
92 y 216 1 = 5 y 8
92 y 217 = 5 y 8
2
a : 92 y 217 = 5 y 8
92 y 5 y 217 = 5 y 5 y 8
87 y 217 = 8
87 y 217 + 217 = 8 + 217
87 y = 209
3
a : 87 y = 209
209
y=
87
209
in the original equation
87
4{3[7( y 3) + 9] + 2( y 9)} 1 = 5( y 1) 3 .
4
25
C > 0 AC > B C
C < 0 AC < B C
A B
>
C C
1.11.4. Division:
A B
C <0 <
C C
1 1
1.11.5. Reciprocal:
< provided A 0, B 0
A B
C >0
The final answer will have one the four forms x > a , x a ,
x < a , and x a . One must remember that in of the four
cases, x has infinitely many solutions as opposed to one
solution for the linear equation.
26
1.12.
Order of Operations
Step 1: Perform all power raisings in the order they occur from left
to right
Step 2: Perform all multiplications and divisions in the order they
occur from left to right
Step 3: Perform all additions and subtractions in the order they
occur from left to right
Step 4: If parentheses are present, first perform steps 1 through 3
on an as-needed basis within the innermost set of
parentheses until a single number is achieved. Then
perform steps 1 through 3 (again, on an as-needed basis)
for the next level of parentheses until all parentheses have
been systematically removed.
Step 5: If a fraction bar is present, simultaneously perform steps 1
through 4 for the numerator and denominator, treating
each as totally-separate problem until a single number is
achieved. Once single numbers have been achieved for
both the numerator and the denominator, then a final
division can be performed.
27
9
9
28
4(18 {8} + 2 3 ) + 6 9
=
2(9 2 8 2 )
4(18 {8} + 8) + 6 9
=
2(81 64)
4([18 + 8] + 8) + 6 9
=
2(17)
4(26 + 8) + 6 9
=
34
4(34) + 6 9
=
34
136 + 6 9
=
34
136 + 54
=
34
190
=
34
2 95 95
=
2 17 17
29
= p
Notation for Logarithm Base 10 : Logx log10 x
Notation for Logarithm Base e : ln x log e x
log a N
Change of Base Formula: log b N =
log a b
Product: log b ( MN ) = log b N + log b M
M
N
p
1.15.11. Power: log b N =
1.15.10. Quotient: log b
log b p
= log b M log b N
p log b N
An B m
, then
Cp
An B m
log b ( X ) = log b
p
C
Let X =
(
)
( )
(A ) + log (B ) log (C )
log b ( X ) = log b A n B m
log b ( X ) = log b
log b C p
30
i 2 + 1 = 0 i 2 = 1 i = 1
1.16.3. Definition of Complex Number: Numbers of the form
a + bi where a, b are real numbers
1.16.4. Definition of Complex Conjugate: a + bi = a bi
1.16.5. Definition of Complex Modulus: a + bi =
a 2 + b2
1.16.6. Addition: ( a + bi ) + (c + di ) = ( a + c ) + (b + d )i
1.16.7. Subtraction: ( a + bi ) (c + di ) = ( a c ) + (b d )i
1.16.8. Process of Complex Number Multiplication
(a + bi )(c + di ) =
a + bi
=
c + di
(a + bi )(c + di )
=
(c + di )(c + di )
(a + bi )(c di )
=
(c + di )(c di )
(ac + bd ) + (bc ad )i
=
c2 d 2
ac + bd bc ad
+
i
c2 d 2 c2 d 2
31
f
x
Input Side
Processing
Rule
f ( x)
Output Side
32
( x)] = f 1 [ f ( x)] = x
1.18.2. Addition/Subtraction: ( f g )( x) = f ( x) g ( x)
1.18.3. Multiplication: ( f g )( x) = f ( x) g ( x)
f ( x) g
g ( x)
; ( x ) =
f ( x)
f
( f o g )( x) = f [ g ( x)]
( g o f )( x) = g[ f ( x)]
1.18.4. Division: ( x ) =
g ( x)
g
1.18.5. Composition:
( x) for f ( x) = x 3 + 2 .
a : f ( f 1 ( x)) = ( f 1 ( x)) 3 + 2 = x
2
a : ( y)3 + 2 = x
3
a : ( y)3 + 2 = x
y =3 x2
4
a : f 1 ( f ( x)) = 3 ( x 3 + 2) 2 = 3 x 3 = x
4
a : f ( f 1 ( x)) =
( x 2) + 2 = ( x 2) + 2 = x
33
ax 2 + bx + c = 0 where a 0, b 0, c 0 . If either b = 0 or
c = 0 , the quadratic equation is called incomplete. If a = 0 , the
quadratic equation reduces to a linear equation. All quadratic
equations have exactly two solutions if complex solutions are
allowed. Solutions are obtained by either factoring or by use of the
quadratic formula. If, within the context of a particular problem
complex solutions are not admissible, quadratic equations can
have up to two real solutions. As with all real-world applications,
the number of admissible solutions depends on context.
1.19.2. Quadratic Formula with Development:
c
b
ax 2 + bx + c = 0 x 2 + x =
a
a
2
2
b
c b
b
x2 + x + 2 = + 2
a 4a
4a
a
2
b
b 2 4ac
x
+
=
4a 2
2a
b 2 4ac
b
x+ =
2a
2a
x=
b b 2 4ac
2a
34
b 2 4ac
bx + c = 0 x =
c
b
b
b 2 4ac
f ( x) = ax + bx + c = a x +
2a
4a
b
1.19.9. Axis of Symmetry for Quadratic Function: x =
2a
b 4ac b 2
35
b
. After this substitution, the above cubic
3a
c b2
3
becomes y + py + q = 0 where p =
and
2
a
3a
Step 1: Set x = y
2b 2
bc d
q=
2 +
3
a
3a
27 a
Step 2: Define u & v such that
y = u v and p = 3uv
This leads to (u
) + qu 3
3 2
p3
= 0 , which is quadratic27
in-form in u .
Step 4: Use the quadratic formula 1.19.3 to solve for u
u3 =
q + q2 +
4
27
p3
u=
q + q2 +
4
27
p3
36
p
to obtain
3u
&v =
q q2 +
2
b
b
x =uv
3a
3a
4
27
p3
P( x) = an x n + a n1 x n1 + ... + a 2 x 2 + a1 x + a0
be
Root
Theorem:
If
has
root
for
1.21.6. Irrational Surd Pair Root Theorem: Suppose P (x) has all
rational coefficients. If
a+ b
is a root for
37
P( x) with
( x d ) to
obtain P ( x) = ( x d ) Q( x) + R . Case d > 0 : If both R and all
the coefficients of Q ( x) are positive, then P ( x) has no
root x0 > d . Case d < 0 : If the roots of Q(x) alternate in sign
with the remainder R in sync at the endthen P ( x ) has no
root x0 < d . Note: Coefficients of zero can be counted either as
1.21.10. Root Bounding Theorem: Divide P ( x ) by
P(x) have
38
1.22.
a b
= ad bc
c d
1.22.2. Three by Three Determinant Expansion:
a b
d
g
e
h
e
f =a
h
i
f
d
b
i
g
f
d
+c
i
g
e
=
h
ax + by = e
cx + dy = f
Then x =
e
f
with D =
b
d
and y =
a b
0
c d
a
c
e
f
D
ax + by + cz = j
a
Given dx + ey + fz = k with D = d
g
gx + hy + iz = l
Then x =
j b
k e
l h
D
c
f
i
,y=
39
a
d
g
j
k
l
D
c
f
i
e
h
f 0
i
,z =
a b j
d e k
g h l
D
Dxi
D
Dxi = 0, D 0 xi = 0
nr.
n!
r!(n r )!
a
i =0
n
a
i =k
= a0 + a1 + a2 + a3 + a4 + ... + an
= a k + a k +1 + a k + 2 + a k +3 ... + a n
n
n
(a + b) n = a n ibi
i =0 i
i =0
i 1
n i i
1 = (1 + 1) n = 2 n
n
(r + 1)th Term: a n r b r
r
40
n
: n = 10
r
1
1 1
1 2 1
1 3 3 1
1 4 6 4 1
1 5 10 10 5 1
1 6 15 20 15 6 1
1 7 21 35 35 21 7 1
1 8 28 56 70 56 28 8 1
1 9 36 84 126 126 84 36 9 1
1 10 45 120 210 252 210 120 45 10 1
S = (a + ib) where
1.24.1. Definition:
b is the common
i =0
increment
1.24.2. Summation Formula for S :
S=
(n + 1)
[2a + nb]
2
1.25.1. Definition:
G = ar i rG = ar i +1
i =0
i =0
i =0
i =0
G rG = ar i ar i +1 = a ar i +1
G=
i +1
a(1 r )
1 r
ar
i =0
41
a
1 r
T
T
F
F
T
F
T
F
F
F
T
T
F
T
F
T
T
F
F
T
T
T
T
F
T
F
F
T
T
F
F
T
pq
T
T
F
F
T
F
T
F
F
T
T
F
42
p =T
r) = T .
Phrase
Comment
I do have none
Assume p = T
Negation of
I have some
1.27.
p : (~ p ) = F
(~ p ) = F
Slang version of 3
Logical consequence of 3:
(~ p ) = F ~ (~ p) = T
1.27.1. Direct: y = kx
k
x
1.27.3. Joint: z = kxy
1.27.2. Inverse: y =
kx
y
n
1.27.5. Direct to Power: y = kx
k
1.27.6. Inverse to Power: y = n
x
1.27.4. Inverse Joint: z =
43
2. Geometry
2.1. The Parallel Postulates
+ = 180 0
+ = 900
+ = 90
44
with
+ = 180
with
90 0
2.3. Triangles
0
a + + = 180
180 0
2.3.2.Acute Triangle: A triangle where all three interior
angles , , are acute
2.3.3.Right Triangle: A triangle where one interior angle
from the triad , , is equal to 90
2.3.4.Obtuse Triangle: A triangle where one interior angle
0
angles
, ,
45
= = = 60 0
46
b c a
= =
e f d
D = 180 0 [n 2]
n=5
n = 5 D = 5400
n=6
n = 6 D = 7200
47
2.6.3.Rectangle: A = bh : P = 2b + 2h ,
base and height
b & h are
the
b
2.6.4.Triangle: A =
1
2
b
2.6.5.Parallelogram: A = bh , b & h are the base and
altitude
h
b
2.6.6.Trapezoid: A =
b
h
B
2.6.7.Circle: A = r : P = 2r where r is the radius, or
P = d where d = 2r , the diameter.
2
r
2.6.8.Ellipse: A = ab ; a & b are the half lengths of the
major & minor axes
48
2.7.
Solid Figures
2.7.2.Sphere: A = 4r : V =
2
4
3
r 3 , r is the radius
2.7.3.Cylinder: A = 2r + 2rl : V = r l ,
the radius and length
2
r &l
are
r
l
2.7.4.Cone: A = r + 2rt : V =
2
1
3
r 2 h , r & t & h
49
are
1
3
s2h ,
z2 = x2 + y2
B
y
A
z
y
50
A = ( x + y ) 2 , or equivalently by
xy
A = z 2 + 4 .
2
Equating:
xy
( x + y ) 2 = z 2 + 4
2
2
2
x + 2 xy + y = z 2 + 2 xy .
x2 + y 2 = z 2
z 2 = x2 + y 2
2.8.3.Visual (Pre-Algebraic) Pythagorean Proof:
Triples:
Positive
L, M , N such that L = M + N
2
integers
M = m 2 n 2 , N = 2mn , and L = m 2 + n 2
51
1
2
b
h
cx
c
2.9.1.Herons Formula: A =
s ( s a )( s b)( s c)
x=
c2 + b2 a2
2c
c2 + b2 a2
2
h +
=b
c
2
a : Solve for h
h=
4c 2 b 2 c 2 + b 2 a 2
4c 2
52
h=
{2cb [c
h=
{a
]}
+ b 2 a 2 }{2cb + c 2 + b 2 a 2
4c 2
}{
[c b] [c + b] a 2
4c 2
2
h=
4c 2
A = 12 c
4c 2
A=
16
a+b+c
a : Substitute s =
and simplify.
2
2c 2b 2a
A = s s s {s}
2
2
2
A = ( s c)( s b)( s a) s
A = s ( s a)( s b)( s c)
2.10.
Golden Ratio
= 1.6181 .
1 x
1 x
1
x
53
x
1 x
a 2 = b 2 + ( ab ) 2
a 2 = b 2 + ab
a 2 ab b 2 = 0
a = b
36 0
a
ab
b
A
36 0
36 0
C
A
1080 C
a 72 0
b
a
2.11.
Distance and Line Formulas
Let ( x1 , y1 ) and ( x 2 , y 2 ) be two points where x 2 > x1 .
2.11.1. 2-D
72 0
Distance
D = ( x 2 x1 ) + ( y 2 y1 )
2
Formula:
2
( x2 , y 2 , z 2 ) ,
and
D = ( x 2 x1 ) 2 + ( y 2 y1 ) 2 + ( z 2 z1 ) 2
x1 + x2 y1 + y2
,
2
2
y 2 y1
x2 x 1
2.11.5. Point/Slope Form: y y 1 = m( x x 1 )
2.11.6. General Form: Ax + By + C = 0
2.11.7. Slope/Intercept
Form:
y = mx + b where
b
,0 and (0, b) are the x and y Intercepts:
m
2.11.4. Slope of Line: m =
54
2.11.8. Intercept/Intercept
Form:
x y
+ =1
a b
1
m2
Slope m :
1
m
2.12.
Centered
(h, k ) :
at
( x h)
( y k)
+
=1
2
a
b2
2
c2 = a2 b2 .
II) If b > a , the two foci are on the line x = h and are
2
2
2
given by ( h, k c) & ( h, k + c) where c = b a .
given by (h c, k ) & (h + c, k ) where
( x h) 2 ( y k ) 2
( y k ) 2 ( x h) 2
=
1
or
=1
a2
b2
b2
a2
( x h) 2
I) When
is to the left of the minus sign, the two
a2
foci are on the line y = k and are given by (h c, k ) &
(h + c, k ) where c 2 = a 2 + b 2 .
55
( y k )2
is to the left of the minus sign, the two
b2
foci are on the line x = h and are given by ( h, k c) &
(h, k + c) where c 2 = b 2 + a 2 .
II) When
2.12.5. Parabola
Length p :
with
Vertex
at
( y k ) 2 = 4 p( x h) or ( x h) 2 = 4 p( y k )
2
I) For ( y k ) , the focus is (h + p, k ) and the directrix is
given by the line x = h p .
2
II) For ( x h) , the focus is ( h, k + p ) and the directrix is
given by the line y = k p .
2.12.6. Transformation Process for Removal of
Term in the General Conic Equation
xy
Ax 2 + Bxy + Cy 2 + Dx + Ey + F = 0 :
B
Step 1: Set tan(2 ) =
and solve for .
AC
Step 2: let
x = x cos y sin
y = x sin + y cos
A( x ) 2 + C ( y ) 2 + D ( x ) + E ( y ) + F = 0 .
56
3. Trigonometry
3.1. Basic
Definitions
of
Trigonometric
Functions
&
Trigonometric
Inverse
Functions
Let the figure above be a right triangle with one side of length x , a
second side of length y , and a hypotenuse of length z . The
angle is opposite the side of length. The six trigonometric
functionswhere each is a function of are defined as follows:
Z:
Arbitrary
y
z
x
3.1.2. cos( ) =
z
y
3.1.3. tan( ) =
x
x
3.1.4. cot( ) =
y
z
3.1.5. sec( ) =
x
z
3.1.6. csc( ) =
y
3.1.1. sin( ) =
Z is 1
Inverse when Z is 1
sin( ) = y
sin 1 ( y ) =
cos( ) = x
cos 1 ( x) =
y
x
x
cot( ) =
y
y
tan 1 =
x
x
cot 1 =
y
1
x
1
csc( ) =
y
1
sec 1 =
x
1
csc 1 =
y
tan( ) =
sec( ) =
57
1
sin( )
1
3.2.2. sec( ) =
cos( )
sin( )
3.2.3. tan( ) =
cos( )
cos( )
3.2.4. cot( ) =
sin( )
1
3.2.5. tan( ) =
cot( )
3.2.1. csc( ) =
58
tan( ) + tan( )
1 tan( ) tan( )
tan( ) tan( )
3.5.6. tan( ) =
1 + tan( ) tan( )
3.5.5. tan( +
) =
3.5.7.Derivation
of
Formulas
for
cos( + )
and
sin( + ) :
In
the
figure
below,
each
coordinate
of
the
point
using both definitions for the sine and cosine in 3.1.1. and 3.1.2.
{cos( + ), sin( + )}
x 2 = sin( ) sin( )
y 2 = sin( ) cos( )
sin( )
{cos( ), sin( )}
cos( )
(0,0)
y1 = sin( ) cos( )
(1,0)
x1 = cos( ) cos( )
From the figure, we have
cos( + ) = x1 x 2
cos( + ) = cos( ) cos( ) sin( ) sin( )
sin( + ) = y1 + y 2
sin( + ) = sin( ) cos( ) + sin( ) cos( )
59
3.6.4. tan( 2 ) =
2 tan( )
1 tan 2 ( )
3.7.2. cos(
3.7.3. tan(
)=
1 cos( )
2
)=
1 + cos( )
2
)=
1 cos( )
sin( )
1 cos( )
=
=
1 + cos( ) 1 + cos( )
sin( )
60
(also
3.8.3.Law of Cosines:
a) y = x + z 2 xz cos( )
2
b) x = y + z 2 yz cos( )
2
c) z = x + y 2 xy cos( )
2
xz sin( )
b) A = yz sin( )
c) A = xy sin( )
a) A =
1
2
1
2
1
2
b
h
x+ y=c
sin( ) sin( )
61
derivation.
x2 + h2 = a2
[c b cos( )]2 + [b sin( )]2 = a 2
3.9.1.Arc Length s : s = r
3.9.2.Area of a Sector: A =
3.10.
1
2
r 2
Degree/Radian Relationship
62
180 0 = radians
To
Radians
Degrees
Degrees
Radians
3.11.
Multiply by
180 0
180
2
2
a +b
= sin 1
or
2
2
a +b
= cos 1
3.12.
b
r = a 2 + b 2 , = Tan 1
a
i
i
3.12.2. Definition of re : re = r (cos + i sin )
i
= 1
n in
3.12.4. De-Moivres Theorem: ( re ) = r e
or
3.12.3. Eulers Famous Equality: e
63
r1e i r2 e i = r1 r2 e i ( + )
3.12.6. Polar Form Division:
3.13.
r1e i
r
= 1 e i ( )
i
r2
r2 e
( x, y ) ( r , )
x = r cos , y = r sin
r = x 2 + y 2 , = tan 1 ( y / x )
3.14.
Trigonometric
Triangles
Values
from
Right
1
x
1 x
3.14.1. cos( ) = 1 x
Then
3.14.2. tan( ) =
1 x2
1 x2
x
1
3.14.3. cot( ) =
3.14.4. sec( ) =
3.14.5. csc( ) =
1 x2
1
x
64
x
.
1
r
V
r
r r
U V = (u1 v1 , u 2 v 2 , u 3 v3 )
r
4.1.2.Scalar Multiplication: ( )U = (u1 , u 2 , u 3 )
r
r
4.1.3.Negative Vector: U = ( 1)U
r
4.1.4.Zero Vector: 0 = (0,0,0)
r
2
2
2
4.1.5.Vector Length: | U |= u1 + u 2 + u 3
r 1 r
4.1.6.Unit Vector Parallel to V : r V
|V |
r r
4.1.7.Two Parallel Vectors: V || U means there is a
r
r
scalar c such that V = (c)U
of
r r
Product: U V = u1 v1 + u 2 v 2 + u 3 v 3
r r
U V
4.2.2.Angle Between Two Vectors: cos = r r
| U || V |
r r
4.2.3.Orthogonal Vectors: U V = 0
65
Dot
4.2.4.Projection of U onto V :
r r
r r r
r
U V r U V V
projVr (U ) = r 2 V = r r =
|V | |V |
|V |
r
r
V
| U | cos r
|V |
r r
r r r
r r r
U (U V ) = V (U V ) = 0
u2
v2
u3
v3
r r
U V
r
V
r
U
u1
r r r
U (V W ) = v1
w1
u2
u3
v2
w2
v3
w3
66
r
U
r
W
r
V
x x1 y y1 z z1
=
=
a
b
c
r
4.4.2.Plane Normal to P Passing Through ( x1 , y1 , z 1 ) .
If ( x, y, z ) is a point on the plane, then
(a, b, c) ( x x1 , y y1 , z z1 ) = 0
4.4.3.Distance D between a point & plane:
If
a
point
is
given
by
( x 0 , y 0 , z 0 ) and
ax + by + cz + d = 0 is a plane, then
ax 0 + by 0 + cz 0 + d
D=
a2 + b2 + c2
v
v
v
cos = r1 , cos = r2 , cos = r3
|V |
|V |
|V |
path PQ :
r
r
r
r
W = F PQ =| proj PQr ( F ) || PQ |
67
5. Elementary Calculus
5.1. What is a Limit?
Limits are foundational to calculus and will always be so.
Limits lead to results unobtainable by algebra alone.
So what is a limit? A limit is a numerical target, a target
acquired and locked. Consider the expression x 7 where x is
an independent variable. The arrow ( ) points to a target on the
right, in this case the number 7 . The variable x on the left is
targeting 7 in a modern smart-weapon sense. This means x is
moving, moving towards target, closing range, and programmed to
merge eventually with the target. Notice that the quantity x is a
true independent variable in that x has been launched and set in
motion towards a target, a target that cannot escape from its
sights. Independent variables usually find themselves embedded
inside an algebraic (or transcendental) expression of some sort,
which is being used as a processing rule for a function. Consider
the expression 2 x + 3 where the independent variable x is about
to be sent on the mission x 5 . Does the entire expression
2 x + 3 in turn target a numerical value as x 5 ? A way to
phrase this question using a new type of mathematical notation
might be t arg et ( 2 x + 3) = ? Interpreting the notation, we are
x 5
68
dx
<< 1 .
x
69
f ( x + h) f ( x )
f ' ( x) = lim
h 0
h
[ ] = 0
5.3.3.Constant: k
[ ] = nx
5.3.4.Power: x
n 1
5.3.5.Coefficient: af ( x)
] = af ' ( x)
5.3.6.Sum/Difference: f ( x ) g ( x )
5.3.7.Product: f ( x ) g ( x)
] =
] =
f ( x) g ( x)
f ( x) g ' ( x) + g ( x) f ' ( x)
f ( x)
g ( x) f ' ( x) f ( x) g ' ( x)
=
5.3.8.Quotient:
g ( x) 2
g ( x)
1
1
5.3.10. Inverse: f ( x ) =
f ' ( f 1 ( x))
5.3.11. Generalized
Power: { f ( x)} = n{ f ( x )}
Again, n can be any exponent
n
n 1
f ' ( x) ;
1
x
5.4.2. [log a x ] =
5.4.3. [e ] = e
x
1
x ln a
5.4.4. [a ] = a ln a
x
70
5.4.6. [sin
( x)] =
1 x 2
5.4.7. [cos x] = sin x
1
1
5.4.8. [cos ( x)] =
1 x 2
2
5.4.9. [tan x ] = sec x
1
1
5.4.10. [tan ( x)] =
1+ x2
5.4.11. [sec x ] = sec x tan x
1
1
5.4.12. [sec ( x )] =
| x | x2 1
5.5.2.Constant: kdx = kx + C
5.5.3.Coefficient: af ( x )dx = a f ( x ) dx
5.5.4.Power Rule for n 1 :
5.5.5.Power
n
x dx =
Rule
x n +1
+C
n +1
for
n = 1 :
1
1
x dx = x dx = ln x + C
5.5.6.Sum:
5.5.7.Difference:
5.5.8.Parts:
f ( x) g ( x)dx = f ( x) g ( x) g ( x) f ( x)dx
5.5.9.Chain: f ( g ( x )) g ( x) dx = f ( g ( x )) + C
71
[ f ( x )]
n
[ f ( x)] f ( x)dx =
n +1
+C
n +1
f ( x)
dx = ln f ( x) + C , n = 1
f ( x)
f ( x)
f ( x)dx = e f ( x ) + C
5.6.2. e dx =e + C
5.6.3. xe dx = ( x 1)e
5.6.1. ln xdx = x ln x x + C
x
+C
ax
+C
ln a
5.6.5. cos xdx = sin x + C
5.6.4. a dx =
x
72
5.6.14.
dx
= sin 1 ( ax ) + C
a x
dx
5.6.15. 2
= a1 tan 1 ( ax ) + C
a + x2
dx
5.6.16. 2
= 21a ln | xx + aa | +C
a x2
2
at ( a, f ( a )) :
Line
y f (a) = f (a)( x a)
1
( x a)
f (a)
5.7.3.Linear Approximation: f ( x) f (a ) + f (a )( x a )
5.7.2.Normal Line at ( a, f ( a )) : y f ( a ) =
f ( x) f (a) + f (a)( x a) +
f (a)
( x a) 2
2
f ( xn )
f ( x n )
Equalities:
y = f ( x) dy = f ( x)dx
f ( x + dx) = f ( x) + f ( x)dx
F ( x + dx) = F ( x) + f ( x)dx
5.8. Interpretation of Definite Integral
At least three interpretations are valid for the definite integral.
First Interpretation: As a processing symbol for functions, the
b
definite integral
f ( x)dx
73
quantities,
f ( x)dx signals
f ( x)dx = F ( x) |
b
a
= F (b) F (a ) is a
f ( x)dx can
be
interpretation
f ( x)dx is
variable
subinterval
[ a , z ] [ a, b] .
This
leads
to
stated
boundary
y (a ) = F (a ) F (a ) = 0
condition
and
f ( x)dx . In this
a
74
Let
f ( x )dx
Then,
f ( x )dx
f ( x)dx = F ( x) |
b
a
= F (b) F (a) .
continuous
[ ]
x = a to x = b
f ( x)dx .
5.10.
[ a , b] :
b
A = [ f ( x) g ( x)]dx
a
f ( x)dx
a
V = [ f ( x)]2 dx
a
V = 2x | f ( x) | dx
a
75
1 + [ f ( x)]2 dx
y Axis:
F ( x) on [a, b] :
W = F ( x)dx
a
5.11.
dy
+ f ( x) y = g ( x)
dx
dy
5.11.2. Bernoulli Equation:
= f ( x) y + g ( x) y n
dx
5.11.1. First Order Linear:
dv
= mg + kv n
dt
dy
= ky : y (0) = y0
dt
dy
5.11.6. Logistic Growth:
= k ( L y ) y : y (0) = y 0
dt
5.11.7. Continuous
Principle
dP
= rP + c 0 : P (0) = P0
dt
5.11.8. Newtons Law in One Dimension:
d
(mV ) = F
dt
5.11.9. Newtons Law in Three
Dimensions:
r
r
d
(mV ) = F
dt
76
Growth:
5.11.10.
Step1: Let
F ( x) be such that F ( x) = f ( x)
e F ( x)
dy
+ f ( x ) y = g ( x ) by e F ( x )
dx
dy
e F ( x ) + e F ( x ) f ( x) y = e F ( x ) g ( x)
dx
d
ye F ( x ) = e F ( x ) g ( x)
dx
e F ( x ) y = e F ( x ) g ( x)dx + C
y = y ( x) = e F ( x ) e F ( x ) g ( x)dx + Ce F ( x )
5.12.
5.12.1. Definition: L[ f (t )] =
f (t )e
st
dt F ( s )
L[af (t ) + bg (t )] = aF ( s) + bG ( s)
L[ f
(n)
(t )] = s n F ( s ) s ( n 1) f (0)
L[ f ( )d ] = F ( s ) / s
0
77
f ( ) g (t )d F (s)G(s)
0
U (t a) = 0
on
[0, a]
on ( a, ] . U (t a )
and
U (t a) = 1
as
f (t a)U (t a ) e as F ( s )
5.13.
5.13.3. t n! / s
n
( n +1)
1 /( s a)
2
5.13.5. te 1 /( s a )
n at
n +1
5.13.6. t e n! /( s a )
k
5.13.7. sin( kt ) 2
s +k 2
2k 2
2
5.13.8. sin (kt )
s ( s 2 +4k 2 )
2ks
5.13.9. t sin( kt ) 2
(s +k 2 ) 2
s
5.13.10.
cos(kt ) 2 2
s +k
s 2 + 2k 2
cos 2 (kt )
5.13.11.
s ( s 2 +4k 2 )
5.13.4. e
at
at
78
5.13.12.
5.13.13.
5.13.14.
5.13.15.
5.13.16.
5.13.17.
5.13.18.
5.13.19.
5.13.20.
5.13.21.
5.13.22.
5.13.23.
5.13.24.
s2 k 2
(s 2 +k 2 ) 2
k
sinh(kt ) 2 2
s k
2k 2
2
sinh (kt )
s ( s 2 4k 2 )
2ks
t sinh(kt ) 2 2 2
( s k )
s
cosh(kt ) 2 2
s k
s 2 2k 2
cosh 2 (kt )
s ( s 2 4k 2 )
t cos(kt )
s2 + k 2
( s 2 k 2 ) 2
k
e at sin( kt )
( s a) 2 + k 2
k
e at sinh( kt )
( s a) 2 k 2
t cosh(kt )
e at e bt
1
ab
( s a )( s b)
sa
e at cos(kt )
( s a) 2 + k 2
sa
e at cosh(kt )
( s a) 2 k 2
ae at be bt
s
ab
( s a )( s b)
79
6.
80
T:
over
A = P + Pr T = P(1 + rT )
P(1 + rT )
12T
6.3. Compound and Continuous Interest
nt
6.3.1.Compounded Growth: A = P (1 + nr )
6.2.3.Monthly payment over T : M =
6.3.2.Continuous Growth: A = Pe
6.3.3.Annually
Compounded
Inflation
rt
A = P(1 i )
Rate
i:
A = Pe it
81
6.4.4.Given P, A, T : reff = T
A
1
P
FV = PV (1 + nr ) nt PV =
FV
(1 + nr ) nt
FV = PV (1 + reff ) t PV =
FV
(1 + reff ) t
Compounding:
FV
FV = PVe rt PV = rt
e
6.5.5.Simple
Interest:
FV
FV = PV (1 + rt ) PV =
(1 + rt )
6.6. Present Value of a Future Deposit Stream
Conditions: n compounding periods per year; total term t years
with nt compounding periods; annual interest rate r ; nt identical
deposits D made at beginning of each compounding period.
6.6.1.Periodic Deposit with no Final Deposit Dnt +1 :
PV =
Dn
(1 +
r
r nt +1
n
(1 +
82
r
n
)}
PV =
Dn
(1 +
r
r nt +1
n
PV =
D
(1 + reff
reff
t +1
(1 + reff
)}
PV =
D
(1 + reff
reff
t +1
PV = ( L D)(1 +
r nt
n
Dn
(1 +
r
r nt +1
n
(1 +
r
n
)}
PV = ( L D)(1 +
r nt
n
Dn
(1 +
r
r nt +1
n
PV = ( L D )(1 + reff
D
(1 + reff
reff
t +1
(1 + reff
PV = ( L D )(1 + reff
D
(1 + reff
reff
t +1
)}
83
6.8.2.Annual
Deposit
plus
Lump
D rt
rt
Sum: PV = Le +
(e 1)
r
6.8.3.Increasing
PV =
Deposit De :
Annual
D
(e rt e t )
r
6.8.4.6.8.3
plus
PV = Le rt +
Lump
Sum:
D
(e rt e t )
r
ROTH IRA
401 (K)
KEOGH
PLAN
Sponsored by
Individual
Sponsored by
Individual
Sponsored
by Company
Taxes on
contributions
and interest
are deferred
until
withdrawn
Taxes on
contributions
paid now. No
taxes on any
proceeds
withdrawn
Taxes on
contributions
and interest
are deferred
until
withdrawn
Taxes on
contributions
and interest
are deferred
until
withdrawn
$3000/year
$6000/year
for jointly
filing couples
$3000/year
$6000/year
for jointly
filing couples
Increases
every year.
Currently
$15,000.00
Up to 25% of
income
Lesser
penalty for
early
withdrawal
Withdrawals
can begin at
age 59.5,
must begin at
70.5
Substantial
penalty for
early
withdrawal
Withdrawals
can begin at
age 59.5,
must begin at
70.5
Substantial
penalty for
early
withdrawal
Substantial
heir rights
Limited heir
rights
Limited heir
rights
Withdrawals
can begin at
age 59.5,
must begin at
70.5
Substantial
penalty for
early
withdrawal
Limited heir
rights
Withdrawals
can begin at
age 59.5
84
6.10.
Loan Amortization
rP
12
rP
12 1 (1 + 12r )
12T
PO j = P(1 + 12r )
j
th
Payment:
th
Payment to Principle:
12 M
(1 + 12r ) j 1
r
6.10.6. Amount M Pj of j
12M rP
M Pj =
(1 + 12r ) j 1
12
6.10.7. Amount
M Ij
of
j th
Payment
Interest: M Ij = M M Pj
6.10.8. Pros and Cons of Long-Term Mortgages:
PROS
Increased total mortgage costs
are partially defrayed by tax
breaks and inflation via payoff
by cheaper dollars
Allows the borrower to buy
more house sooner: with
inflation,
sooner
means
cheaper
Historically, inflation of home
purchase prices contributes
more to home equity buildup
than home equity buildup by
mortgage reduction
CONS
Total mortgage costs are much
more over time
Home equity buildup by
mortgage reduction is much
slower for long-term mortgages
Mortgage is more vulnerable to
personal misfortune such as
sickness or job loss
85
to
6.11.
Annuity Formulas
6.12.
C : Cost
OP : Old price
NP : New price
P % ; Given percent as a decimal equivalent
6.12.1. Markup
Based
on
NP = (1 + P%)C
Original
Cost:
C + P % NP = NP
NP = (1 P%)OP
6.12.5. Percent
6.13.
given
Old
P % = NP / OP
Calculus of Finance
6.13.1. General
Finance:
Differential
and
Equation
New
of
Price:
Elementary
dP
= r (t ) P + D(t ) : P(0) = P0
dt
dP
= r0 P D0 : P(0) = P0
dt
D
P (t ) = P0 e r0t 0 (e rt 1)
r
6.13.3. Present Value of Total Mortgage Repayment:
rP0 e rT it
= rT
e dt APV =
1
0 e
T
APV
86
( ri )P0 (e rT e ( r i )T )
(e rT 1)
P=
7.1.2.Fundamental Properties:
P (U ) = 1
P ( ) = 0
7.1.3.Order Relationship:
A U 0 P( A) 1
7.1.4.Complement Law:
P ( A) = 1 P(~ A)
7.1.5.Addition Law:
P ( A B) = P( A) + P( B) P( A B)
P( A B)
P( B)
P( A B)
P ( B | A) =
P ( A)
P( A | B) =
7.1.7.Multiplication Law:
P( A B) = P( B) P( A | B)
P ( A B) = P( A) P( B | A)
A B =
P ( A B) = P( A) P( B)
87
re-listing
of
the
individual
numerical order from smallest to largest. Data sets can come from
either populations or from samples. Most data sets will be
considered samples. As such, the sample statistics obtained
from the sample will be utilized to make inferential predictions for
corresponding population statistics characterizing a much larger
population. Inference processes are valid if and only if one can
be assured that the sample obtained is a random sample.
88
Ei
Much larger population
having unknown
statistics ,
Example of Statistical Inference
Use x to predict .
Questions:
9 Is my sample a random sample?
9 How close is my prediction?
9 How certain is my prediction?
89
1
N
x
i =1
1
N
x
i =1
s=
Standard
N
1
N 1
(x
i =1
x) 2 .
7.4.3.Population
Standard
1
N
(x
i =1
Deviation s :
Deviation :
)2 .
7.4.4.Sample Variance: s
7.4.5.Population Variance:
s
x
90
xi x
s
7.5.2.Standard Deviation of x :
Finite Population of Count N
Infinite Population
x =
x =
N n
N 1 n
is unknown, substitute s .
xi
/ n
Small-Sample Case
x z
2 n
s
x t
2 n
7.5.5.Sampling Error E R : E R = z
2
z
.
n= 2
E R
91
n(1 p) 5 .
E X ( p) =
7.6.1.Expected Value E X of p :
7.6.2.Standard Deviation of p :
Infinite Population
p (1 p )
n
p =
N n
N 1
p =
p (1 p )
n
p z
2
p (1 p )
n
p (1 p )
if clueless on the initial size of p .
n
Note: Use p = .5 in
7.6.4.Sampling Error: E R = z
2
7.6.5.Sample
Size
Needed
p (1 p )
n
for
Given
Error:
n=
z p(1 p )
2
ER 2
7.6.6.Worse
n=
case
for
4 ER 2
92
7.6.5.,
proportion
unknown:
Section II
Tables
93
1. Numerical
1.1.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
94
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
95
1.2.
2
31
73
113
173
227
277
337
397
449
503
577
631
691
757
823
883
953
1.3.
5
41
83
131
181
233
283
349
401
461
521
593
643
701
769
829
971
7
43
89
137
191
239
293
353
409
463
523
599
647
709
773
839
907
977
11
47
97
139
193
241
359
419
467
541
653
719
787
853
911
983
13
53
149
197
251
307
367
421
479
547
601
659
727
797
857
919
991
17
59
101
151
199
257
311
373
431
487
557
607
661
733
859
929
997
19
61
103
157
263
313
379
433
491
563
613
673
739
809
863
937
23
67
107
163
211
269
317
383
439
499
569
617
677
743
811
877
941
29
71
109
167
223
271
331
389
443
571
619
683
751
821
881
947
ARABIC
1
2
3
4
5
6
7
8
9
ROMAN
I
II
III
IV
V
VI
VII
VIII
IX
ARABIC
10
11
15
20
30
40
50
60
100
96
1.4.
NUM
NUM
MEM
1.4142
1.7321
3.1416
ln(10)
2.2361
2.7182
Log (e)
1.5.
MEM
2.6457
NUM
MEM
0.6180
2.3026
0.4343
NUM
NAME
NUM
NAME
NUM
NAME
10^3
thousand
10^18
quintillion
10^33
decillion
10^6
million
10^21
sextillion
10^36
undecillion
10^9
billion
10^24
septillion
10^39
duodecillion
10^12
trillion
10^27
octillion
10^48
quidecillion
10^15
quadrillion
10^30
nontillion
10^63
vigintillion
1.6.
1.6.1.
2 7 6
9 5 1
4 3 8
2 4 7
5 1 8
9 3 6
97
1.6.2.
1.6.3.
15
12
10
13
11
16
14
15
24 17
23
16
14
20
13 22
12 21 10 19
18
11 25
Note: For a Magic Square of size NXN, the Magic Sum is given by
the formula
N ( N 2 + 1)
2
98
1.6.4.
1.6.5.
18
21
22
10
17
12
24
18
15
13
11
21
14
16
23
25
32
34 35
12 29
10 26 25
13 14 22 21 23 18
24 20 16 15 17 19
30 11 28 27
31
36
33
99
1.6.6.
22 21 13
46 38 30
31 23 15 14
47 39
40 32 24 16
48
49 31 33 25 17
43 42 34 26 18 10
11
20 12
1.6.7.
44 36 35 27 19
4
45 37 29 28
16 81 79 78 77 13 12 11
76 28 65 62 61 26 27 18
75 23 36 53 51 35 30 59
74 24 50 40 45 38 32 58
25 33 39 41 43 49 57 73
10 60 34 44 37 42 48 22 72
14 63 52 29 31 47 46 19 68
15 64 17 20 21 56 55 54 67
80
100
69 70 71 66
1.7.
Different font sizes are used for, one, two, or three-digit entries.
10
11
12
13
10
11
12
13
10
12
14
16
18
20
22
24
26
12
15
18
21
24
27
30
33
36
39
12
16
20
24
28
32
36
40
44
48
42
10
15
20
25
30
35
40
45
50
55
60
65
12
18
24
30
36
42
48
54
60
66
72
78
14
21
28
35
42
49
56
63
70
77
84
91
16
24
32
40
48
56
64
72
80
88
96
104
18
27
36
45
54
63
72
81
90
99
108
117
10
10
20
30
40
50
60
70
80
90
100
110
120
130
11
11
22
33
44
55
66
77
88
99
110
121
132
143
12
12
24
36
48
60
72
84
96
108
120
132
144
156
13
13
26
39
42
65
78
91
104
117
130
143
156
169
Note: The shaded blocks on the main diagonal are the first thirteen
squares
101
1.8.
The digits of PI pass every randomness test. Hence, the first 900
digits of PI serve equally well as a random number table.
102
1.9.
.5000
.4602
.4207
.3821
.3446
.3085
.2742
.2420
.2119
.1841
.1587
.1357
.1151
.0968
.0807
.0668
.0548
.0445
.0359
.0287
.0228
.0178
.0139
.0107
.0082
.0062
.0047
.0035
.0026
.0019
.0013
.0010
.0007
.0005
.0003
.0002
.0002
.0001
.4960
.4562
.4168
.3783
.3409
.3050
.2709
.2389
.2090
.1814
.1562
.1335
.1131
.0951
.0793
.0655
.0536
.0436
.0351
.0280
.0222
.0174
.0136
.0104
.0080
.0060
.0045
.0034
.0025
.0018
.0013
.0010
.0007
.0005
.0003
.0002
.0002
.0001
.4920
.4522
.4129
.3744
.3372
.3015
.2676
.2358
.2061
.1788
.1539
.1314
.1112
.0934
.0778
.0642
.0526
.0427
.0344
.0274
.0217
.0170
.0132
.0101
.0078
.0058
.0044
.0033
.0024
.0018
.0013
.0009
.0006
.0005
.0003
.0002
.0002
.0001
.4880 .4840
.4483 .4443
.4090 .4051
.3707 .3669
.3336 .3300
.2980 .2946
.2643 .2611
.2327 .2297
.2033 .2005
.1761 .1736
.1515 .1492
.1292 .1271
.1093 .1074
.0918 .0901
.0764 .0749
.0630 .0618
.0515 .0505
.0418 .0409
.0336 .0329
.0268 .0262
.0212 .0206
.0165 .0162
.0128 .0125
.0099 .0096
.0075 .0073
.0057 .0055
.0043 .0041
.0032 .0031
.0023 .0023
.0017 .0016
.0012 .0012
.0009 .0009
.0007 .0007
.0004 .0004
.0003 .0003
.0002 .0002
.0001 .0001
Right Tail
103
90%
95%
99%
6.314
2.920
2.353
2.132
2.015
1.943
1.895
1.860
1.833
1.812
1.796
1.782
1.771
1.761
1.753
1.746
1.740
1.734
1.729
1.725
1.721
1.717
1.714
1.711
1.708
1.706
1.703
1.701
1.699
1.697
1.684
1.671
1.658
1.645
12.706
4.303
3.182
2.776
2.571
2.447
2.365
2.306
2.262
2.228
2.201
2.179
2.160
2.145
2.131
2.120
2.110
2.101
2.093
2.083
2.080
2.074
2.069
2.064
2.060
2.056
2.052
2.048
2.045
2.042
2.021
2.000
1.980
1.960
63.657
9.925
5.841
4.604
4.032
3.707
3.499
3.355
3.250
3.169
3.106
3.055
3.012
2.977
2.947
2.921
2.898
2.878
2.861
2.845
2.831
2.819
2.907
2.797
2.787
2.779
2.771
2.763
2.756
2.750
2.704
2.660
2.617
2.576
104
105
2.
Physical Sciences
2.1.
2.1.1.
Apothecary
1minim
16minims
60minims
4fluidrams
8fluidrams
2.1.2.
Household
1fluidram
0.5fluidounce
1fluidounce
8fluidounces
16fluidounces
32fluidounces
1drop
1gtt
60gtts
3tsp
2tbsp
1cup
2cups
2pints
1tsp
1tbsp
1grain
15grains
60grains
8drams
12ounces
9
9
9
1mL (cc)
5mL (cc) or 4mL
15mL (cc)
30mL (cc)
240mL (cc)
500mL (cc) or 480mL
1000mL (cc) or 960mL
Apothecary
2.1.3.
1pint
1quart
Metric
1dram
1ounce
1pound
Metric
60mg or 64mg
1g
4g
32g
384g
General Comments
106
2.2.
ABBREVIATION
b.i.d.
b.i.w.
c
cap, caps
dil.
DS
gtt
h, hr
h.s.
I.M.
I.V.
n.p.o., NPO
NS, N/S
o.d.
p.o
p.r.n.
q.
q.a.m.
q.d.
q.h.
q2h
q4h
q.i.d.
ss
s.c., S.C., s.q.
stat, STAT
susp
tab
t.i.d.
P% strength
A:B strength
MEANING
Twice a day
Twice a week
With
Capsule
Dilute
Double strength
Drop
Hour
Hour of sleep, at bedtime
Intramuscular
Intravenous
Nothing by mouth
Normal saline
Once a day, every day
By or through mouth
As needed, as necessary
Every, each
Every morning
Every day
Every hour
Every two hours
Every four hours
Four times a day
One half
Subcutaneous
Immediately, at once
Suspension
Tablet
Three times a day
P grams per 100 mL
A grams per B mL
107
2.3.
Grey area is the danger zone where exposed human flesh will
begin to freeze within one minute.
T
E
M
P
0
2.4.
35
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
10
31
25
19
13
7
1
-5
-11
-16
-22
-28
-34
-40
27
21
15
9
3
-4
-10
-16
-22
-28
-35
-41
-47
25
19
13
6
0
-7
-13
-19
-26
-32
-39
-45
-51
24
17
11
4
-2
-9
-15
-22
-29
-35
-42
-48
-55
23
16
9
3
-4
-11
-17
-24
-31
-37
-44
-51
-58
22
15
8
1
-5
-12
-19
-26
-33
-39
-46
-53
-60
35
40
21
14
7
0
-7
-14
-21
-27
-34
-41
-48
-55
-62
20
13
6
-1
-8
-15
-22
-29
-36
-43
-50
-57
-64
T
E
M
P
0
105
104
103
102
101
100
97
95
90
30
85
90
114
112
110
108
106
104
99
96
89
123
121
118
116
113
111
105
101
92
190
184
178
172
166
161
145
136
115
199
193
186
180
174
168
152
141
119
135
131
128
125
122
119
112
107
96
148
144
140
136
133
129
120
114
100
108
163
158
154
149
145
141
129
122
106
180
175
169
164
159
154
140
131
112
2.5.
MULTIPLY
BY
acres
ft2
43560
2
acres
m
4046.9
acres
rods
160
acres
hectares
0.4047
acre feet
barrels
7758
acre feet
m3
1233.5
Angstrom ()
cm
10E-8
Angstrom
nm
0.1
astronomical unit (AU) cm
1.496E13
astronomical unit
km
1.496E8
atmospheres (atm)
feet H2O 33.94
atmospheres
in of Hg
29.92
atmospheres
mm of Hg 760
atmospheres
psi
14.7
bar
atm
.98692
2
bar
dyne/cm
10E6
bar
psi (lb/in2) 14.5038
bar
mm Hg
750.06
bar
MPa
10E-1
barrels (bbl)
ft3
5.6146
barrels
m3
0.15898
barrels
gal (US)
42
barrels
liter
158.9
TO CONVERT
TO
109
TO CONVERT
TO
MULTIPLY BY
BTU
BTU
BTU
BTU
calorie (cal)
centimeter (cm)
cm
darcy
dyne
dyne
erg
erg
erg
fathom
feet (ft)
feet
furlong
gallon (US gal)
gallon
(Imperial) gal
gallon
gamma
gamma
gauss
gram (g)
gram
hectare
hectare
horsepower
Canadian BTU
cal
erg
joule
joule
inch
m
m2
g cm /s2
Newton
cal
dyne cm
joule
ft
in
m
yd
in3
liter
in3
liter
Gauss
Tesla
Tesla
pound
kg
acre
cm2
Watt (W)
1.000418022
251.996
1.055055853 E-10
1054.35
4.184
0.39370
1E-2
9.8697E-13
1
10E-5
2.39006E-8
1
10E-7
6
12
0.3048
220
231
3.78541
277.419
4.54608
10E-5
10E-9
10E-4
0.0022046
10E-3
2.47105
10E-8
745.700
110
TO CONVERT
TO
MULTIPLY BY
inch (in)
inch (in)
joule (J)
joule
kilogram (kg)
kilogram
kilometer (km)
kilometer
kilometer
Kilometer/hr (kph)
kilowatt
knot
liter
liter
liter
meter
meter
micron
mile
mile
mm Hg
Newton
Newton
Newton-meter (torque)
ounce
Pascal
Pascal
Pascal
pint
poise
poise
cm
mm
erg
cal
g
pound
m
ft
mile
mile/hr (mph)
hp
mph
cm3
gal (US)
in3
angstrom
ft
cm
ft
km
dyne/cm2
dyne
pound force
foot-pound-force
lb
atmospheres
psi
torr
gallon
g /cm/s
kg /m/s
2.54
25.4
10E7
0.239006
10E3
2.20462
10E3
3280.84
0.621371
0.621371
1.34102
1.150779
10E3
0.26417
61.0237
10E10
3.28084
10E-4
5280
1.60934
1333.22
10E5
0.224809
0.737562
0.0625
9.86923 x10E-6
1.45 x10E-4
7.501 x10E-3
0.125
1
0.1
111
2.7.
TO CONVERT
TO
MULTIPLY BY
pound mass
pound force
rod
quart
stoke
slug
Tesla
Torr
Torr
ton (long)
ton (metric)
ton (metric)
ton (short or net)
ton (short or net)
ton (short or net)
watt
yard
yard
year (calendar)
year (calendar)
kg
Newton
feet
gallon
cm2 /s
kg
Gauss
millibar
millimeter hg
lb
lb
kg
lb
kg
ton (metric)
J /s
in
m
days
s
0.453592
4.4475
16.5
0.25
1
14.594
10E4
1.333224
1
2240
2205
1000
2000
907.185
0.907
1
36
0.9144
365.242198781
3.15576 x 10E7
PROPERTY
Distance from
sun
Equatorial
diameter
Length of day
VALUE
9.2.9x10^6
miles
Length of year
365.26 days
7926 miles
24 hours
112
PROPERTY
Earth
Surface g
Moon distance
from earth
Moon diameter
Moon
revolution
VALUE
32.2 ft/s2
238,393
miles
2160 miles
27 days, 7
hours
2.8.
Metric System
2.8.1.
QUANTITY
NAME
SYMBOL
UNITS
Length
Time
Mass
Temperature
Electrical
Current
Force
Volume
Energy
Power
Frequency
Charge
meter
second
kilogram
Kelvin
m
s
kg
K
basic unit
basic unit
basic unit
basic unit
ampere
basic unit
Newton
Liter
joule
watt
hertz
coulomb
N
L
J
W
Hz
C
Capacitance
farad
kg m s-2
m3
kg m2 s-2
kg m2 s-3
s-1
As
C2 s2 kg-1 m-
Magnetic
Induction
Tesla
2.8.2.
kg A-1 s-2
Metric Prefixes
PREFIX
FACTOR
SYMBOL
METER EXAMPLE
peta
tera
giga
mega
kilo
hecto
deca
deci
centi
milli
micro
nano
pica
10^15
10^12
10^9
10^6
10^3
10^2
10^1
10^(-1)
10^(-2)
10^(-3)
10^(-6)
10^(-9)
10^(-12)
E
P
G
M
k
h
da
d
c
m
Em
Pm
Gm
Mm
km
hm
dam
dm
cm
mm
n
p
nm
pm
113
2.9.
British System
2.9.1.
QUANTITY
Length
Time
Mass
Temperature
Electrical Current
Force
Volume
Work
Power
Charge
Capacitance
Heat
2.9.2.
NAME
foot
second
slug
Fahrenheit
ampere
pound
gallon
foot-pound
horsepower
coulomb
farad
British
thermal unit
SYMBOL
ft
s
UNITS
F
A
lb
gal
ft-lb
hp
C
F
basic unit
basic unit
basic unit
basic unit
basic unit
derived unit
derived unit
derived unit
derived unit
derived unit
derived unit
Btu
basic unit
WEIGHT
Grain=Basic Unit
1 scruple=20 grains
1 dram=3 scruples
1 ounce=16 drams
1 pound=16 ounces
1 hundredweight=100 pounds
1 ton=2000 pounds
1 long ton=2240 pounds
114
LINEAR
Inch=Basic Unit
1 hand=4 inches
1 link=7.92 inches
1 span=9 inches
1 foot=12 inches
1 yard=3 feet
1 fathom=2 yards
1 rod=5.5 yards
1 chain=100 links=22 yards
1 furlong=220 yards
1 mile=1760 yards
1 knot mile=6076.1155 feet
1 league=3 miles
2.9.3.
LIQUID
Gill=Basic Unit
1 pint=4 gills
1 quart= 2 pints
1 gallon=4 quarts
1 hogshead=63 gallons
1 pipe (or butt)=2
hogsheads
1 tun=2 pipes
2.9.4.
DRY
Pint=Basic Unit
1 quart=2 pints
1 gallon=4 quarts
1 peck=2 gallons
1 bushel=4 pecks
AREA
1 square chain=16
square rods
1 acre=43,560
square feet
1 acre=160
square rods
1 square mile = 640
square acres
1 square mile = 1
section
1 township = 36
sections
ASTRONOMY
1 astronomical unit (AU) =
93,000,000 miles
1 light second = 186,000
miles =0.002 AU
1 light year = 5.88x10^12
miles =6.3226x10^4 AU
1 parsec (pc) = 3.26 light
years
1 kpc=1000pc
1 mpc = 1000000pc
VOLUME
1 U.S. liquid gallon= 231
cubic inches
I Imperial gallon=1.2 U.S.
gallons=0.16 cubic feet
1 cord=128 cubic feet
115
116
Section III
Applications in
Personal
Finance
117
What is Interest?
In the bank: % = 2
percent
month
3 12 months = 7 percent
118
%
year
over a 42
1
years
D = Rt , where D
is distance,
is the
%
$150,000.00 is borrowed at 9 year
for 125
days. How much are the total interest charges using A) ordinary
interest as the basis for computation, B) bankers interest as the
basis for computation?
119
%
year
)( 125
365 years ) = $4623.29
B) I = ($150,000.00)(9
%
year
)( 125
360 years ) = $4687.50 .
1.2.
Simple Interest
120
A = $47,310.00
2
a:M =
A
$47,310.00
=
= $563.22
# months
84
%
year
%
15
)( 12
years) = $12,500.00
a : I = Pr t = $100,000.00(10 year
2
121
a : I = Frt
15
12,500.00 = 87,500.00(r )( 12
)
109,375.00r = 12,500.00
12,500.00
%
r=
= 11.4 year
109,375.00
Notice that the interest rate is increased by 1.4 percentage points
by simply changing the type of loan, i.e. a Simple Discount Note.
This will always be the case: not only does interest rate matter, but
also the type of loan employing the interest rate. As shown in our
last example, precise formulas allow one to easily calculate the
various financial quantities without resorting to the use of
extensive financial tables.
1.3.
Compound Interest
A1 = P + I = P + Prc 1 = P(1 + rc )1 = P1 .
After the second compounding period, we have
122
A2 = P1 + I = P1 + P1 rc = P1 (1 + rc )1
A2 = P(1 + rc )1 (1 + rc )1 = P(1 + rc ) 2 = P2
After the third compounding period, the process cycles again with
the result
A3 = P2 + I = P2 + P2 rc = P2 (1 + rc )1
A3 = P(1 + rc ) 2 (1 + rc )1 = P(1 + rc ) 3 = P3
a : A = P(1 + nr ) nt
A = $100,000.00(1 + 0.403 ) 410
A = $100,000.00(1.0075) 40 = $134,834.86
123
%
$25,000.00 compounds at 1 period
for
240 periods. Find the amount A at the end of the term.
Ex 1.3.2: An amount of
1
a : A = P(1 + rc ) n
a : A = P(1 + nr ) nt
1.4.
Continuous Interest
Consider the compound interest formula A = P (1 + nr ) .
nt
124
r
n
n
1
10
12
100
365
1000
10000
100000
1000000
A
$1.6288946
$1.6466684
$1.6470095
$1.6485152
$1.6486641
$1.6487006
$1.6487192
$1.6487210
$1.6487212
125
n m . Substituting, we
A = lim[ P(1 + nr ) nt ]
n
A = P{lim[(1 + nr ) n ]}t .
n
m value
(1 + m1 ) m
1
10
100
1000
10000
100000
1000000
2
2.5937
2.7048
2.7169
2.7181
2.7183
2.7183
126
A = P{e}rt
A = Pe
rt
a : A = Pe rt
A = $10,000.00e ( 0.0830 )
A = $110,231.76
127
a : A = P(1 + nr ) nt
A = $10,000.00(1 + 012.08 )1230
A = $10,000.00(1.00667) 360
A = $109,487.73
Notice that there is less than $400.00 difference between
the two amounts, which shows the continuous interest formula a
very valuable tool for making estimates when the number of
compounding periods in a year exceeds twelve or more. By
providing a quick upper bound for the total amount to be returned,
the continuous interest formula can also be thought of as a fiscal
gold standard defining the limiting capabilities of the
compounding process. In the next two examples, we explore the
use of the continuous interest formula in providing rapid estimates
for both interest rate and time needed to achieve a given
amount A . In each example, the natural logarithm (denoted by
rt
$10,000.00 is
a : A = Pe rt Pe rt = A
$10,000e 40 r = $1,000,000.00
e 40 r = 100
2
a : ln(e 40 r ) = ln(100)
40r ln(e) = ln(100)
40r = 4.605
%
r = 0.057 = 11.5 year
128
%
year
P to
a : A = Pe rt
4 P = Pe ( 0.05)t
Pe ( 0.05) t = 4 P e ( 0.05) t = 4
2
129
P (1 + reff ) t = P[(1 + nr ) n ]t
(1 + reff ) t = [(1 + nr ) n ]t
1 + reff = (1 + nr ) n
reff = (1 + nr ) n 1
In the case of continuous interest, we have
P (1 + reff ) t = Pe rt
(1 + reff ) t = [e r ]t
1 + reff = e r
reff = e r 1
In the case of simple interest, we have
P (1 + reff ) t = P(1 + rt )
(1 + reff ) t = (1 + rt )
1 + reff = t 1 + rt
reff = t 1 + rt 1
The effective interest rate, as defined above, is a simple
and powerful consumer basis of comparison in that it combines
both rate and process information into a single number. Banks and
other lending institutes are legally required to state effective
interest rate in their advertising and on their documents. Stock
market returns over a long period of time are normally specified in
terms of an average annual growth or interest rate. We definitely
need to know the meaning of reff and its use if we are to survive
the confusion of numbers tossed our way in modern society.
130
%
year
%
year
compounded
compounded quarterly?
a : reff = e r 1
%
reff = e 0.0725 1 = 0.07519 = 7.519 year
2
a : reff = (1 + nr ) n 1
4
%
reff = (1 + 0.075
4 ) 1 = 0.07713 = 7.713 year
%
year
%
effective interest rate is Reff = 7.713 year
.
25 years
a : P = $5,000.00 A = $80,000.00
1980 2005
30 years
a : P = $80,000.00 A ?
2005 2045
131
a : A = P(1 + reff ) t
$80,000.00 = $5,000.00(1 + reff
(1 + reff
) 25
) 25
= 16 1 + reff = 25 16 = 1.1172
%
reff = 0.1172 = 11.72 year
2
a : A = $80,000.00(1 + 0.1172) 30
A = $80,000.00(1.1172) 30 = $2,223,401.00
The average annual interest/growth rate of 11.72
%
year
is very good
a : A = P(1 + reff ) t
$107,951.00 = $9949.00(1 + reff ) 30
10.85 = (1 + reff ) 30
1 + reff = 30 10.85 = 1.08271
%
reff = 0.08271 = 8.271 year
%
certainly exceeds the
The final average growth rate of 8.271 year
%
average inflation annual rate of 3 year
132
Ex 1.5.4:
%
$10,000.00 is lent to a friend at 2 year
simple interest
a : reff = t 1 + rt 1
reff = 5 1 + (0.02)5 1 = 5 1.1 1 = 0.0192
%
reff = 1.92 year
Q
a : reff = 10 1 + (0.12)10 1
%
reff = 10 1 + 1.2 1 = 10 2.2 1 = 8.204 year
%
a : reff = e 0.07 1 = 7.251 year
%
a : reff = (1 + 0.408 ) 4 1 = 8.243 year
Quarterly compounding at
%
8 year
133
a : A = P (1 + rt )
1alt
a : A = P (1 + reff ) t
A = $25,000.00(1 + 0.08204)10 = $55,001.32
2
a : A = Pe rt
A = $25,000.00e 0.0710 = $50,343.82
2 alt
a : A = P(1 + reff ) t
A = $25,000.00(1 + 0.07251)10 = $50,344.67
3
a : A = P (1 + nr ) nt
A = $25,000.00(1 +
0.08 410
4
= $55,200.99
3 alt
134
PV FV .
time
P A .
t
PV FV .
t
Note: The above formula is not completely correct until one takes
in account the effects of inflation, an analysis option. To account
for inflation, subtract the annual inflation rate from the given
annual interest rate. Use the modified rate in present-to-future
value formulas to project an inflation-adjusted future value.
135
FV
(1 + nr ) nt
FV
FV = PV (1 + reff ) t PV =
(1 + reff ) t
FV = PV (1 + nr ) nt PV =
FV
e rt
Continuous Interest:
FV = PVe rt PV =
Simple Interest:
FV = PV (1 + rt ) PV =
FV
(1 + rt )
a: PV =
FV
(1 + reff ) t
$1,800,000.00
(1 + .115) 35
$1,800,000.00
PV =
= $39,870.54
(1.115) 35
PV =
136
a: FV = PV (1 + reff ) t
FV = PV (1 + i ) t
FV = $1,800,000.00(1.03) 35
FV = $5,064,952.42
Interpreted, $5,064,952.42 is the amount needed 35 years from
now just to preserve the buying power inherent in
$1,800,000.00 today assuming a long-term steady inflation rate of
%
i = 3 year
. Turning to the present value of this new amount
a: PV =
%
year
, we have
FV
(1 + reff ) t
$5,064,952.42
(1 + .115) 35
$5,064,952.42
= $96,147.83
PV =
(1.115) 35
PV =
137
a: FV = PV (1 + reff ) t
FV = $235,000.00(1 + 0.05) 4
FV = $285,644.00
This is some disconcerting news in that the same house will sell
for approximately $285,644.00 four years from now. If you can
afford it, you better buy now. Waiting costs money!
Ex 2.1.4: Calculate the present value of a $100,000.00 corporate
%
bond coming due in 15 years at 5 year
compounded quarterly.
1
a : PV =
PV =
FV
(1 + nr ) nt
$100,000.00
= $47,456.76
(1 + 0.405 ) 60
2.2.
138
a: $13,000.00 FV ?
age 65
age 25
Solving:
2
a: FV = PV (1 + reff ) t
FV = $13,000.00(1 + 0.08) 40
FV = $282,417.77
Ex 2.2.2: Calculate the effective annual interest rate needed to
turn $10,000.00 into $1,000,000.00 over a 25 year period.
reff ?
a: $10,000.00 $1,000,000.00
t =0
t = 25
100 = 1 + reff
1.2022 = 1 + reff
%
reff = 0.2022 = 20.22 year
139
%
year
is probably
a: PV 4 PV
t =0
t =15
a: 4 PV = PVe15 r
4 = e15 r
ln(4) = ln(e15 r )
1.38629 = 15r
%
r = rcont = 0.0924 = 9.24 year
%
year
is certainly
140
a: $40,000 FV ?
age 30
age 68
$60 , 000
age 40
PV =
$2,361,433.35
= $63,132.59 ,
(1.1) 38
FVadj =
$2,361,433.35
= $767,999.88 .
(1.03) 38
141
2.3.
r
n
r
n
r
n
r
n
r
n
r
n
D1 D D D D D D FV ? .
2
nt 1
nt
r nt +1i
n
. Thus,
nt
FV = FVi
i =1
nt
FV = Di (1 +
i =1
nt
FV = D (1 +
i =1
142
r nt +1i
n
r nt +1i
n
The expression
nt
D (1 +
i =1
r nt +1 i
n
= D (1 +
) + (1 + nr )2 + ... + (1 + nr )nt }
r 1
n
D (1 +
i =1
r nt i
n
Dn
(1 +
r
(1 +
r nt +1
n
Dn
(1 +
r
r
n
)},
r nt +1
n
(1 +
r
n
)}.
r
n
r
n
r
n
r
n
r
n
r
n
D1 D D D D D D D FV ?
2
nt 1
nt +1
nt
Dn
(1 +
r
r
n
r nt +1
n
1 .
= reff and D is a
D
(1 + reff
reff
D
(1 + reff
reff
t +1
t +1
(1 + reff
)}
143
a: $5,000.00 29 (
t =0
) FV ?
t =30
$5000.00
Here, the diagram starts with the first annual deposit of $5000.00
at t = 0 and annotates via multiplication the subsequent 29 annual
$5000.00 deposits made at the start of each annual
compounding period. Solving,
2
a FV =
D
(1 + reff
reff
t +1
(1 + reff
)}
$5000.00
(1.11)31 (1.11) .
.11
FV = $1,104,565.87
FV =
a: PV ? $1,104,565.87
t =0
t =30
144
a: PV (1 + reff ) t = FV
PV (1.11) 30 = $1,104,565.87
$1,104,565.874
PV =
= $48,250.54
(1.11) 30
Ex 2.3.3: Sam contributes $200.00 per month to a college
savings account for his daughter Mary, who just turned 12. In
addition, he makes bonus deposits of $1000.00 on Marys
birthday. Sam started this practice with a combined $1200.00
deposit on the day of Marys birth and will cash out on Marys 18th
birthday with a final deposit of $1200.00 . How much will be in
%
Marys college savings account at that time assuming r = 7 year
and monthly compounding?
This problem can be thought of as two sub-problems: 1) a monthly
deposit stream of 217 individual deposits over a term of 18 years
and 2) a parallel yearly deposit stream of 19 individual deposits
over a period of 18 years. The total future value will be the sum of
both parallel deposit streams the day Mary turns 18.
For the monthly deposit stream, we slightly modify the monetarygrowth diagram to show the inclusion of the final deposit.
%
r = 7 year
a: $200.00 215 (
t =0
Solving:
2
FVmonth
) + $200.00 = FVmonth ?
t =18
Dn
(1 + nr )nt +1 1
r
$200.00(12)
(1 + 012.07 )217 1
=
0.07
= $86,846.71
a : FVmonth =
FVmonth
$200.00
145
For the yearly deposit stream, we will first need to compute the
effective annual interest rate: reff = (1 +
%
) 1 = 7.229 year
.
0.07 12
12
a: $1000.00 17 (
t =0
a : FV year =
D
(1 + reff
reff
) + $1000.00 = FV year ?
nt
t =18
$1000.00
(1 + 0.07229)19 1
0.07229
= $38,268.93
FV year =
FV year
$1000.00
A) a: D ? 215 ( ) + D ? = FV ?
t =0
D?
t =18
146
Dn
(1 +
r
rFV
a: FV =
D=
D=
n (1 +
r nt +1
n
r nt +1
n
0.07($160,000.00)
12 (1 + 012.07 )
217
D = $368.47
%
r = 7 year
B) a: PV ? $160,000.00
t =0
t =18
a: PV (1 + nr ) nt = FV
PV (1.005833) 216 = $160,000.00
$160,000.00
PV =
= $45,551.09
(1.005833) 216
This example suggests the old maxim of pay me now or pay me
later. One could think of now as a single payment of $45,551.09
and later as a deposit stream of 217 payments, each $368.47 ,
totaling $79,957.99.
2.4.
r
n
r
n
r
n
r
n
r
n
r
n
LS D D D D D D D FV ? .
2
nt 1
147
nt
nt +1
r
n
r
n
r
n
r
n
r
n
r
n
( LS D1 ) + D 1 D D D D D D D FV ? .
2
nt 1
nt +1
nt
FV = ( LS D)(1 +
r nt
n
Dn
(1 +
r
r nt +1
n
1 .
$2000.00
+ $2000.00 = FV ?
t =35
Solving:
2
a: FV = ( LS D)(1 +
r nt
n
FV = $3000.00(1 + 0.408 )
Dn
(1 +
r
r nt +1
n
140
$2,000.00(4)
(1 + 0.408 )141 1
0.08
FV = $47,989.39 + $1,531,639.53 = $1,579,628.92
148
Note: The reader may ask, Is this the only way that a monetary-growth
diagram can be drawn? The answer is an emphatic no! These diagrams
are offered as a suggested approach for two reasons: 1) they visually
imply a flow of money and 2) they have been classroom tested. The
important thing is to make a monetary-growth diagram that has meaning
to you and upon which you can assemble all the relevant information.
a: $1,579,628.92 FV ?
t =0
t =10
a: PV (1 + reff ) t = FV
$1,579,628.92(1.045)10 = FV
FV = $2,453,115.42
Ex 2.4.2 illustrates the importance of being able to choose
the right formula for the right scenario. In many investment
scenarios, several formulas may have to be used in order to obtain
the sought-after answer. Understanding of the underlying concepts
and facility with algebra are the two keys to success. We will now
list all four future-value formulas with initial lump sum deposit LS
corresponding to the four deposit-stream formulas.
Final Deposit & Other-than-Annual Compounding:
FV = ( LS D)(1 +
r nt
n
149
Dn
(1 +
r
r nt +1
n
FV = ( LS D)(1 +
r nt
n
Dn
(1 +
r
FV = ( LS D)(1 + reff
r nt +1
n
D
(1 + reff
reff
(1 +
r
n
)}
(1 + reff
t +1
FV = ( LS D)(1 + reff
D
(1 + reff
reff
t +1
)}
a: $1000.00 + $1000.00 38 (
age 22
+ $1000.00 = FVRoth ?
age 60
150
$1000.00
D
(1 + reff
reff
t +1
FVRoth = $1000.00(1.125) +
FVRoth
$1000.00
(1.125)39 1
0.125
$1000.00
38
(1.125)39 1
= $1000.00(1.125) +
0.125
= $87,860.94 + $782,748.47 = $870,609.41
38
FVRoth
a: $15,000.00 FVtaxfree ?
age 45
a: FVtaxfree = PV (1 + reff
2
age 60
FVtaxfree = $15,000.00(1.045)
15
FVtaxfree = $29,029.23
Finally: FV = FV Roth + FVtaxfree = $899,638.64
To recap, through smart investing, George was able to turn
contributions totaling $55,000.00 into $899,638.64 over a 38year period.
2.5.
Summary
151
FV =
TERM
5 yr
10 yr
15 yr
20 yr
25 yr
30 yr
35 yr
40 yr
45 yr
50 yr
D
(1 + reff
reff
t +1
1 .
$28,613
$63,134
$111,552
$179,460
$274,705
$408,292
$595,653
$858,438
$1,227,007
$1,743,943
$30,093
$70,241
$132,013
$227,058
$373,295
$598,300
$944,498
$1,477,167
$2,296,744
$3,557,764
152
$31,651
$78,245
$156,759
$289,060
$511,995
$887,652
$1,520,657
$2,587,307
$4,384,675
$7,413,343
$33,290
$87,257
$186,686
$369,879
$707,400
$1,329,260
$2,474,997
$4,585,943
$8,475,224
$15,640,972
Loan Amortization
Very few people buy a house with cash. For most of us,
the mortgage is the time-honored way to home ownership. A
mortgage is a long-term collateralized loan, usually with a financial
institution, where the title-deed to the house itself is the collateral.
Once a mortgage is secured, mortgage payments are then made
month-by-month and year-by-year until the amount originally
borrowed is fully paid, usually within a pre-specified time in years.
We call this process of methodically paying backpayment by
paymentthe amount originally borrowed amortizing a loan. The
word amortize means to liquidate, extinguish, or put to death. So,
to amortize a loan means to put the loan to death. In generations
past (especially those in the Greatest Generation), the final
payment in putting a loan to death was celebrated with the
ceremonial burning of some of the mortgage paperwork. This
symbolized the death of the mortgage and the associated
transference of the title deed to the proud and debt-free
homeowners. Nowadays, we Baby Boomers or Generation Xers
dont usually hang on to a mortgage long enough to have the
satisfaction of burning it.
Suppose we borrow a mortgage amount A , which is
scheduled to be compounded monthly for a term of T years at an
annual interest rate r . If no payments are to be made during the
term, and a single balloon payment is to be made at the end of the
term, then the future value FV A of this single balloon payment is
FV A = A(1 + 12r )
12T
be a stream of identically-sized
153
FVD =
12 D
(1 + 12r )12T 1
r
For the mortgage to be paid, the future value of the mortgageamount borrowed must be equal to the total future value of the
mortgage-payments made. Hence,
12D
(1 + 12r )12T 1 = A(1 + 12r )12T
r
12T
rA(1 + 12r )
.
D=
r 12T
12 (1 + 12 ) 1
D=
rA
12 1 (1 + 12r )
12T
PVPS = 12TD
and the present dollar value of all the interest paid via the entire
payment stream
PVIPS = 12TD A .
Another fundamental quantity associated with a loan,
particularly a mortgage loan, undergoing the process of
amortization is the actual dollar value of the original loan still
unpaidcalled the payoff or payout valueafter a given number
j of monthly payments D have been made. We will denote this
payoff value by the algebraic symbol PO j .
154
th
th
)j .
In like
D will have
, and the total future value of the first j
grown to D(1 + )
12 D
(1 + 12r ) j 1 .
monthly payments D will have grown to
r
Hence, the amount of the payoff PO j that corresponds to exactly
the first j monthly payments D is
PO j = A(1 + 12r )
j
12 D
(1 + 12r ) j 1 .
r
th
th
D Aj = (PO j PO j 1 ) = PO j 1 PO j
12 D
(1 + 12r ) j 1 1
r
12 D
j
A(1 + 12r )
(1 + 12r ) j 1
r
12 D
j 1
j
D Aj = A (1 + 12r ) (1 + 12r )
(1 + 12r ) j 1 (1 + 12r ) j
r
12 D
12 D rA
D Aj =
(1 + 12r ) j 1
12
D Aj = A(1 + 12r )
j 1
155
I is
DIj = D D Aj .
Note: In this hand book, we have deliberately shied away from the term
principal in favor of more user-friendly terms that allow the construction
of non-overlapping and pneumonic algebraic symbols. Traditionally, the
principal P is a capital sum initially borrowed or initially deposited to
which a compounding mechanism is applied.
D=
Monthly Payment:
rA
12 1 (1 + 12r )
12T
th
Monthly Payment:
PO j = A(1 + 12r )
j
Amount of j
th
12 D
(1 + 12r ) j 1
r
12 D rA
D Aj =
(1 + 12r ) j 1
12
Amount of j
th
156
Ex
3.1.1:
a: D =
D=
rA
12 1 (1 + 12r )
12T
0.07 ($400,000.00)
12 1 (1 + 012.07 )
204
D = $3358.64mo
2
a: PVPS = 12TD
PVPS = 12 17 ($3358.64)
PVPS = $685,163.09
3
a: PVIPS = 12TD A
PVIPS = $685,163.09 $400,000.00
PVIPS = $285,163.09
The last three quantities are payment specific.
4
a: PO j = A(1 + 12r )
j
12 D
(1 + 12r ) j 1
r
180
12($3358.64)
(1 + 012.07 )180 1
0.07
PO180 = $1,139,578.69 $1,064,562.24
PO180 = $75,015.61
157
12
12($3358.64) (0.07)($400,000.00)
(1 + 012.07 )99
D A100 =
12
D A100 = $1834.24
6
a: DI 100 = D D A100
DI 100 = $3358.64 $1834.24
DI 100 = $1524.39
Ex 5.1.2: Bill borrows $38,000.00 in order to buy a new SUV.
%
The 5 year
declining-balance loan (another name for a loan that is
a: D =
D=
A)
rA
12 1 (1 + 12r )
12T
0.05 ($38,000.00)
12 1 (1 + 012.05 )
84
D = $537.09mo
2
a: PVPS = 12TD
PVPS = 12 7 ($539.09)
PVPS = $45,115.43
158
a: PVIPS = 12TD A
1
12 D rA
a: D A1 =
(1 + 12r )11 = 12 D rA
12
12
12($539.64) (0.05)($38,000.00)
B) D A1 =
12
D A1 = $381.30
2
a: DI 1 = D D A1 DI 1 = $157.99
1
12 D rA
(1 + 12r ) j 1
a: D Aj =
12
2
a: D AJ = 0.9 D
12 D rA
r J 1
12 (1 + 12 ) = 0.9 D
C)
$381.30(1.004167) J 1 = $485.67
(1.004167) J 1 = 1.2737
( J 1) ln(1.004167) = ln(1.2737)
ln(1.2737)
J 1 =
J 1 = 58.17
ln(1.004167)
J = 60
Note: Notice the use of the natural logarithm ln when solving for
J 1 . Taking the logarithm of both sides is the standard
technique when solving algebraic equations where the variable
appears as an exponent. In theory, one can use any base, but
ln is a standard key available on most scientific calculators.
159
12 D rA
(1 + 12r ) j 1
D Aj =
12
.
12 D rA
D A1 =
12
Recall that
D=
rA
12 1 (1 + 12r )
12T
}.
D A1
D A1
D A1
rA
12
rA
12 1 (1 + r )12T
12
=
12
1
rA
=
12 1 (1 + 12r )12T
1
rA
=
12 (1 + 12r )12T 1
1
rA
12T
D A1 12 (1 + 12r ) 1
=
rA
D
12T
12 1 (1 + 12r )
160
D A1
12T
= (1 + 12r )
D
Ex 3.1.3: Calculate
D A1
%
for r = 8.25 year
and the following
D
D A1
= (1.006875) 180 = .291 = 29.1% :
D
D A1
D
20 years
= 19.3% : 30 years A1 = 8.48%
D
D
D A1
12T
The expression
= (1 + 12r )
can be used to build a
D
15 years
lookup table for various annual interest rates and typical loan
amortization terms where the entries in the body of the table will
be the corresponding principal-to-overall-payment ratios
D A1
for
D
TERM
15 yr
20 yr
30 yr
40 yr
5%
.473
.368
.223
.135
.351
.247
.123
.061
.302
.202
.091
.041
.260
.166
.067
.027
% = .247 .123
% = .124 = 12.4%
161
3.2
162
The
amortization
T = 15 yrs @ r = 6.25
options
%
year
are
as
follows:
, 2) T = 20 yrs @ r = 6.90
%
year
1)
, and 3)
%
. Compute the monthly payment for
T = 30 yrs @ r = 7.25 year
%
a:T = 15 yrs @ r = 6.25 year
D=
0.0625($260,000.00)
)
12 1 (1 + 0.0625
12
12 (15 )
D = $2,229.30mo
2
%
a:T = 20 yrs @ r = 6.90 year
D=
0.0690($260,000.00)
)
12 1 (1 + 0.0625
12
12 ( 20 )
D = $2,098.30mo
3
%
a:T = 30 yrs @ r = 7.25 year
D=
0.0725($260,000.00)
)
12 1 (1 + 0.0725
12
12 ( 30 )
D = $1773.66mo
Of interest would be the present value PV PS = 12TD of all
mortgage payments comprising the payment stream for each of
the three options. Once PV PS is determined, we can determine
163
12
D = $2533.00mo
164
a: $2533.00 =
0.0650( A)
12 1 (1 + 0.12065 )
12 ( 30 )
12 1 (1 + 0.12065 )
A=
0.065
A = $400,800.74
12 ( 30 )
}{$2533.00}
0.80
PP = $500,000.00
PP =
Notice that the down payment needed under the above scenario is
a hefty $100,000.00 .
The next example answers the question, if I increase my
payment by so many dollars per month, how much sooner will I be
able to pay off my mortgage?
Ex 3.2.3: Nathan and his wife Nancy purchased a house seven
%
. The
years ago, financing $175,000.00 for 30 years at r = 7 year
couples monthly income has recently increased by $500.00 .
Nathan and Nancy decide to use $250.00 of this increase for an
additional monthly principle payment. A) If the couple follows this
plan, how many years will they be able to save from the current 23
years remaining on the mortgage? B) How much money will they
save in interest charges?
165
%
a:T = 30 yrs @ r = 7.00 year
D=
0.070($175,000.00)
12 1 (1 + 0.12070 )
12 ( 30 )
} D = $1164.28mo
a: PO j = A(1 + 12r )
j
12 D
(1 + 12r ) j 1
r
84
12{$1164.28}
(1 + 0.12070 )84 1 PO84 = $159,507.97
0.070
D=
rA
12 1 (1 + 12r )
12T
D=
D=
rA
12 1 (1 + 12r )
12T
0.070($159,507.97)
12 1 (1 + 0.12070 )
12( 23)
D = $1164.28mo
166
} .
a: D =
rA
12 1 (1 + 12r )
$1414.28 =
12T
0.070($159,507.97)
12 1 (1 + 0.12070 )
$16,971.36 1 (1 + 0.12070 )
{1 (1 +
0.070 12T
12
12T
12T
}= $11,165.56
} = .6579
167
+ 12(15.36)($1414.28) $175,000.00
PVIPS (recalculated ) = $183,479.61
Savings = $60,661.19
Thus Nathan and Nancy will be able to save $60,661.19 in
interest charges if they faithfully follow their original plan.
In the next example, the mortgage initially has a term of
30 years and the mortgagee wishes to amortize it on an
accelerated 20 year schedule after five years have elapsed in the
original term.
Ex 3.2.4: Brian Smith purchased a house five years ago and
%
. He would like
financed $215,000.00 for 30 years at r = 7.2 year
to pay off his house in 15 years. A) By how much should he
increase his monthly payment in order to make this happen? B)
How much does he save in the long run by following the
compressed repayment schedule?
Step 1 is the calculation of the existing monthly payment.
1
%
a:T = 30 yrs @ r = 7.20 year
D=
0.072($215,000.00)
12 1 (1 + 0.12072 )
12 ( 30 )
D = $1459.39mo
In Step 2, we calculate the payoff at the end of five years.
168
a: PO j = A(1 + 12r )
j
12 D
(1 + 12r ) j 1
r
60
12{$1459.39}
(1 + 0.12072 )60 1
0.072
PO60 = $202,809.89
%
a:T = 15 yrs @ r = 7.20 year
D=
0.072($202,809.89)
12 1 (1 + 0.12072 )
12 (15 )
} D = $1845.66mo
Once the old and revised payments are known, Part A) is easily
answered.
4
%
$159,000.00 for 20 years at r = 6.2 year
. Three years later, 15-
%
year
169
%
a:T = 20 yrs @ r = 6.20 year
D=
0.062($159,000.00)
12 1 (1 + 0.12062 )
12 ( 20 )
D = $1157.55mo
2
a: PO j = A(1 + 12r )
j
12 D
(1 + 12r ) j 1
r
36
12{$1157.55}
(1 + 0.12062 )36 1
0.062
PO36 = $145,741.48
%
a:T = 15 yrs @ r = 4.875 year
D=
0.04875($147,241.48)
)
12 1 (1 + 0.04875
12
12 (15 )
D = $1154.81mo
Notice that the monthly payment actually drops a little bit, and we
have compressed the overall term by two years! Using our
standard methodology, the overall savings is
4
%
year
years into the loan, Teresa was cut to half-time work for a period
of 24 months.
170
%
a:T = 30 yrs @ r = 7.00 year
D=
0.07($360,000.00)
12 1 (1 + 012.07 )
12 ( 30 )
} .
D = $2395.09mo
At the end of three years, the mortgage balance is
2
a: PO j = A(1 + 12r )
j
12 D
(1 + 12r ) j 1
r
36
12{$2395.09}
(1 + 012.07 )36 1
0.07
PO36 = $348,217.03
We use the same formula the second time in order to calculate the
effects of making a monthly half payment of $1197.54 for a
period of two years on a partially-amortized loan having a starting
balance $348,217.03 .
12 D
(1 + 12r ) j 1
r
24
PO24 = $348,217.03(1 + 012.07 )
3
a: PO j = A(1 + 12r )
j
12{$1197.54}
(1 + 012.07 )24 1
0.07
PO24 = $369,627.84
171
a: D =
rA
12 1 (1 + 12r )
$2395.08 =
12T
0.070($369,627.84)
12 1 (1 + 0.12070 )
12T
$28,740.96 1 (1 + 0.12070 )
{1 (1 +
0.070 12T
12
12T
}= $25,873.95
}= .90025 (1 +
0.070 12T
12
= 0.09975
B) With the original payment, Teresa will not pay off her mortgage
until another 33 years have passed. When added to the five years
that have already transpired, this mortgage will require 38 years to
amortize assuming no other changes occur.
To bring Teresa back on schedule, we will need to calculate a
revised mortgage payment that allows her to amortize the balance
of $369,627.84 in 25 years.
5
%
a:T = 25 yrs @ r = 7.00 year
D=
0.07($369,627.84)
12 1 (1 + 012.07 )
12 ( 25 )
} D = $2612.45mo
C)
172
3.3
a: Sales Pr ice =
%
a:T = 5.5 yrs @ r = 4.00 year
D=
0.04($40,372.00)
12 1 (1 + 012.04 )
66
D = $682.46mo
3
173
174
t +1
Ex 3.3.2: Project the value of Bobs SUV over the life of the
corresponding loan with and without immediate Showroom
Depreciation. Use an annual depreciation rate of P = .15 and
calculate the two values at six-month intervals.
Looking
back
at
the
previous
example,
we
see
that SRP = $45,000.00 . The results obtained via the two vehicledepreciation models are shown in the table below.
With
Showroom
Depreciation
$38,250.00
$35,264.00
$32,512.00
$29,975.00
$27,635.00
$25,478.00
$23,490.00
$21,656.00
$19,966.00
$18,408.00
$16,971.00
$15,647.00
Without
Showroom
Depreciation
$45,000.00
$41,487.00
$38,250.00
$35,264.00
$32,512.00
$29,975.00
$27,635.00
$25,478.00
$23,490.00
$21,656.00
$19,966.00
$18,408.00
175
PO j = A(1 + 12r )
j
12 D
(1 + 12r ) j 1 .
r
AMORTIZATION OF
BOBS SUV LOAN
Time in
Remaining
months
Loan Balance
$40,372.00
0
$37,057.16
6
$33,675.47
12
$30,225.58
18
$26,706.12
24
$23,115.68
30
$19,452.83
36
$15,716.11
42
$11,904.27
48
$8,015.06
54
$4,047.67
60
$0.26
66
Note the few cents remaining on the loan balance. Increasing the
monthly loan payment to an even $683.00 will easily eliminate
that problem (caused by rounding errors)an approach most
lending institutions would take.
Now for the moment of truth! We will merge the last two
tables into a new table in order to compare depreciated value to
current loan balance line-by-line.
176
With
Showroom
Depreciation
$38,250.00
$35,264.00
$32,512.00
$29,975.00
$27,635.00
$25,478.00
$23,490.00
$21,656.00
$19,966.00
$18,408.00
$16,971.00
$15,647.00
With No
Showroom
Depreciation
$45,000.00
$41,487.00
$38,250.00
$35,264.00
$32,512.00
$29,975.00
$27,635.00
$25,478.00
$23,490.00
$21,656.00
$19,966.00
$18,408.00
Remaining
Loan
Balance
$40,372.00
$37,057.16
$33,675.47
$30,225.58
$26,706.12
$23,115.68
$19,452.83
$15,716.11
$11,904.27
$8,015.06
$4,047.67
$0.26
177
a: Sales Pr ice =
%
a:T = 5 yrs @ r = 3.50 year
D=
0.035($23,904.00)
12 1 (1 + 0.12035 )
60
D = $434.85mo
At the seventeen-month point, we need to calculate both the
remaining wholesale value of the Camry (which hopefully equals
the insurance proceeds) and the remaining balance on the loan.
Also, as a rule, the Toyota Camry holds its resale value rather
well. Thus, we will be optimistic and use P = 0.13 in conjunction
with showroom depreciation. Notice the rescaling of the time t to
months.
3
a : V (t ) = SRP (1 P)
t + 12
12
29
12
V (t ) = $24,995.00 (0.87)
V (t ) = $17,852.18
4
12 D
j
(1 + 12r ) j 1
a : PO j = A(1 + 12r )
r
17
12($434.85)
(1 + 0.12035 )17 1
0.035
PO17 = $17,549.82
178
Mr. Harvey escaped by the skin of his teeth. After the loan balance
is paid off, he will have pocketed $302.36 . But wait, Mr. Harvey
will have to come up with an additional down payment because
John now needs another car. Life on the edge!
The last story might have been significantly different if
another model of automobile was involved. Lets assume that the
purchase price, discount, taxes, and loan conditions remain
identical but the make and model of car is one for which P = 0.20 .
Then, starting again at Step 3, we have
3
a : V (t ) = SRP (1 P)
t +12
12
29
12
V (t ) = $24,995.00 (0.80)
V (t ) = $14,576.52
4
a : PO17 = $17,549.82
5
179
%
a:T = 7 yrs @ r = 5.89 year
D=
0.0589($18,706.81)
)
12 1 (1 + 0.0589
12
84
D = $272.29mo
Notice that we are only about $3.00 away from the advertised
payment; hence we will accept the dealerships calculations as
valid. Note: the small difference is probably due on how we interpreted
%
5.89 year
actual annual rate r .
reff
or an
Next, lets compute the sum of all interest payments during the life
of the loan.
3
a : PVIPS = 12TD A
PV IPS = (84) ($272.29) $18,706.81
PV IPS = $4165.55
An important thing to note here is that the dealership is gaining
back 80% of the advertised rebate $5000.00 in interest charges.
The hook is the lure of no money down.
Lastly, lets examine loan edginess in terms of remaining loan
balance versus the depreciated value of the Freestar. Considering
the size of the initial rebate, assume that the initial showroom
discount has already occurred.
180
Hence,
the
appropriate
depreciation
model
is
With no
Showroom
Depreciation
$17,483.00
$16,118.52
$14,860.55
$13,700.75
$12,631.47
$11,645.64
$10,736.75
$9,898.79
$9,126.23
$8,413.97
Remaining
Loan
Balance
$18,706.81
$17,610.61
$16,487.42
$15,319.19
$14,121.99
$12,889.11
$11,619.46
$10,311.96
$8,965.48
$7,557.85
181
a : V (t ) = SRP (1 P) t +1
51
a : FV = PV (1 + 12r ) T PV (1 + 12r ) T = FV
182
3.4
%
year
at age
a: $10,000.00 41 (
t =0
) FV ?
t = 42
$4000.00
D
(1 + reff
reff
t +1
$4000.00
(1.09)43 1 .
0.09
= $223,905.19 + $1,763,382.65 = $1,987,287.84
FV401K = $6000.00(1.09 ) +
42
FV401K
183
rA
12 1 (1 + 12r )
12T
D=
0.05($1,987,287.84)
12 1 (1 + 012.05 )
12( 30)
$8,280.36
0.77617
D = $10,668.18mo
D=
PO j = A(1 + 12r )
j
12 D
(1 + 12r ) j 1
r
240
12{$10,668.18}
(1 + 012.05 )240 1
0.05
PO240 = $1,005,815.89
When Mike dies at age 87, he leaves $1,005,815.89 in nonliquidated funds. Hopefully his annuity is such that any unused
amount reverts to Mikes estates and heirs as specified in a will.
184
dy
= f ( x) y + g ( x) y n
dx
185
dy
= f ( x) y + g ( x) .
dx
The solution is obtained via Bernoullis 300-year-old methodology
as follows.
Step1: Let F (x ) be such that F ( x ) = f ( x )
Step 2: Formulate the integrating factor e
Step 3: Multiply both sides of
F ( x)
dy
= f ( x) y + g ( x) by e F ( x ) to
dx
obtain
dy
e F ( x ) = e F ( x ) [ f ( x ) y + g ( x )]
dx
dy
e F ( x ) + e F ( x ) [ f ( x)] y = e F ( x ) g ( x)
dy
Where the left-hand side of the last equality is the derivative of a
product
dy
d F ( x)
e F ( x ) + e F ( x ) [ f ( x)] y = e F ( x ) g ( x) =
e
y
dx
dy
.
Step 4: To complete the solution, perform the indefinite
integration.
d F ( x)
e
y = e F ( x ) g ( x)
dx
e F ( x ) y = e F ( x ) g ( x)dx + C
y = y ( x) = e F ( x ) e F ( x ) g ( x)dx + Ce F ( x )
186
4.2
dp = Kdt dp = K (t )dt .
The exact form of the proportionality expression K (t ) will depend
on whether principle is growing, decaying, or whether there is a
number of complementary and/or competing monetary-change
mechanisms at work. Any one of these mechanisms may be time
dependent in and of itself necessitating the writing of K
as K = K (t ) . The simplest case is the monetary growth
mechanism where K = rp 0 , the product of a constant interest rate
dp = rp0 dt : p (0) = p0 .
The preceding is a first-order linear differential equation written in
separated form with stated initial condition. It can be easily solved
in three steps:
187
a : p (t ) = p0 rt + C
2
a : p (0) = p0 C = p0
a : p (t ) = p0 rt + p0 = p0 (1 + rt )
One might recognize the last expression as the functional form of
the simple interest formula. The same differential equation can be
written as
dp
= rp0 : p(0) = p0 after division by dt .
dt
This form highlights the differential-based definition of the first
derivative. In words it states that the ratio of an induced differential
change of principle with respect to a corresponding, intrinsic
differential change in time is constant, being equal to the applied
constant interest rate times the initial principal, also constant.
Simple examination of both sides of the above differential equation
reveals common and consistent units for both sides with
dp dollars
dollars
& rp0
.
dt
year
year
The expression
dp
p (t ) is known as the Leibniz form of the
dt
4.3
188
dp
= r (t ) p (t ) + d (t ) : p (0) = p0
dt
where p (0) = p0 is the amount of principal present at the onset of
the process.
Translating the differential equation into words, the instantaneous
rate of change of principal with respect to time equals the sum of
two independently acting quantities: 1) the product of the variable
interest rate with the principal concurrently present and 2) a
variable direct-addition rate. The preceding differential equation is
applicable in the business world if the principal p is continuously
growing (or declining) with time. When the interest rate is fixed
r (t ) r0 and the independent direct-addition rate is
zero d (t ) 0 , the differential equation reduces to
dp
= r0 p : p (0) = p0 .
dt
Solving using separation of variables gives
1
a:
dp
= r0 dt
p
a : ln( p) = r0 t + C p (t ) = e C e r0t .
3
rt
189
dp
= r (t ) p (t ) + d (t ) : p (0) = p0 ,
dt
we see that it is Bernoulli in form with the solution given again by
an atrocious expression
F (t ) = r (t )dt
p (t ) = e F ( t ) e F ( t ) d (t )dt + Ce F ( t )
Upon comparison with the general solution developed in detail
earlier. The initial condition p (0) = p0 will be applied on a caseby-case basis as we explore the various and powerful uses of the
above solution in the world of finance. Depending on the
complexity of r (t ) and d (t ) , the coupled solution
F (t ) = r (t )dt
p (t ) = e F ( t ) e F ( t ) d (t )dt + Ce F ( t ) : p (0) = p0
may or may not be expressible in terms of a simple algebraic
expression.. Thus, since interest rates are unpredictable and out
of any one individuals control (I have seen double-digit swings in
both savings-account rates and mortgage rates in my lifetime), we
will assume for the purpose of predictive analysis that the interest
rate is constant throughout the time interval of interest r (t ) r0 .
This immediately leads to
190
4.4
Applications
4.4.1
p (t ) = p 0 e r0t +
d 0 r0t
e 1
r0
d 0 r0 t
e 1 results from direct principal
r0
addition via annual metered contributions into the same interestbearing account. If either of the constants p 0 or d 0 is zero, then
the corresponding term drops away from the overall expression.
The following two-stage investment problem illustrates the use of
p (t ) = p 0 e r0t +
Ex
d 0 r0t
e 1 .
r0
%
year
. Five
years later, you roll this account over into a solid stock fund
%
) and start contributing
(whose fifty-year average is 8 year
191
A) In the first five years, the only growth mechanism in play is that
induced by the initial investment of $10,000 .00 . Thus, the
amount at the end of the first five years is given by
3000 0.08(38)
(e
1)
0.08
p (38) = $148,797.22 + $375,869.11
p (38) = $528,666.34
$148,792.22
= .281 = 28.1%
$528,666.34
Note: The initial investment of $10,000 .00 is generating
28.1% of
dp
= r0 p + d 0 et : p (0) = p0
dt
where the constant annual contribution rate d 0 in the previous
model d 0 has been replaced with the expression d 0 e
0t
, allowing
192
]
dt ]+ Ce
p(t ) = d 0 e r0t e ( 0 r0 ) t
p(t ) = po e r0t +
r0t
: p(0) = p0 .
d0
e r0t e 0t
r0 0
3000
(e 0.08(38) e 0.03( 38) )
0.08 .03
p (38) = $148,797.22 + $1,066,708.49
P (38) = $1,215,500.71
p (38) = 13,498.58e 0.08(38) +
38
$3000.00e
0.03t
dt =
$100,000.00e
0.03t
| = $212,676.83
38
0
$148,792.22
= .122 = 12.2%
$1,215,500.71
Most of us dont receive a large amount of money early in our
lives. That is the reason we are a nation primarily made up of
middle-class individuals. So with this in mind, we will forgo the
early inheritance in our next example.
193
3000
(e 0.10( 43) e 0.05( 43) )
0.10 0.05
p (43) = $3,906,896.11
p (43) =
rT 0 = r0 i0 = 10% 3% = 7% = 0.07
T 0 = 0 i0 = 5% 3% = 2% = 0.02
Sadly, our true value after 43 years in terms of todays buying
power is
3000
(e 0.07 ( 43) e 0.02( 43) )
0.07 0.02
p(43) = $1,075,454.35
p(43) =
4.4.2
194
p (t ) = p 0 e r0t +
d 0 r0t
e 1
r0
d0 =
r0 p0 e r0t
.
e r0t 1
d0
r0 p0 e r0t
m0 =
=
12 12 e r0t 1
r0 p0
12
r Te r0T
I = p0 0r0T
1
e 1
r Tp e r0T
Total Amount Paid A = p0 + I : A = 0 r T 0
e 0 1
Total Interest I Payment :
m0 =
A=
0.0575($250,000.00)e 0.0575( 30 )
= $1457.62
12(e 0.0575( 30) 1)
0.0575(30)($250,000.00)e 0.0575( 30 )
= $524,745.50
(e 0.0575( 30 ) 1)
195
m PV =
r0 P0 e r0T
e i0t .
r0T
12(e 1)
Thus,
under
stable
as
continuous
summingprovides
the
r0 P0 e r0T i0t
r0 P0 (e r0T e ( r0 i0 )T )
= r0T
e dt =
1
i0 (e r0T 1)
0 e
T
APV
196
dispense with the calculations and present the results in the table
below.
APV
Terms
T = 30
6.00%
$1797.05
$646,938.00 $426,569.60
T = 20 5.75%
$2103.57
$504,856.80 $379.642.52
T = 15
$2369.09
$426,436.20 $343,396.61
5.00%
m0 =
(0.045)($1,075,454.35)e ( 0.045) 24
= $6,106.79 .
12(e ( 0.045) 24 1)
197
198
Appendices
199
A.
Greek Alphabet
GREEK LETTER
Upper Case
Lower Case
200
ENGLISH NAME
Alpha
Beta
Gamma
Delta
Epsilon
Zeta
Eta
Theta
Iota
Kappa
Lambda
Mu
Nu
Xi
Omicron
Pi
Rho
Sigma
Tau
Upsilon
Phi
Chi
Psi
Omega
B.
Mathematical Symbols
SYMBOL
MEANING
Plus or Add
Divide
Multiply or Times
Power raising
{ } or [ ] or ( )
=
>
<
x, t , etc.
f (x) or y
Parentheses
Is equal to
Is defined as
Does not equal
Is approximately equal to
Is similar too
Is greater than
Is greater than or equal to
Is less than
Is less than or equal to
Variables or pronumbers
Function of an independent variable
Approaches a limit
differentials
First derivative of a function
Second derivative of a function
201
SYMBOL
1
a, a
A B
AB
A B
!
MEANING
Step 1, Step 2, etc.
A implies B
B implies A
A implies B implies A
Factorial
i =1
i =1
||
U
I
202
SYMBOL
x A
x A
A B
A B
MEANING
Membership in a set A
Non-membership in a set A
Set A is contained in set B
Set A is not contained in set B
The empty set
QED: thus it is shown
For every
There exists
The number Pi such as in 3.1
The number e such as in 2.7
The Golden Ratio such as in 1.6
203
C.
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10.
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11.
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12.
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13.
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14.
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15.
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16.
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18.
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204
205