3/9/2020

Slide 2.1

Lecture 3
(10/3/2020)

Chapter 3
Mathematics of Finance
Sections 3.1 & 3.2

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

Slide 1.2

Contents
• Section 3.1. Percentages
• Section 3.2. Compound interest

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

1
 3/9/2020

Slide 1.3

Section 3.1.
Percentages
Percentages, scale factors, percentage change, index numbers

and
adjusting value data for inflation

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

Slide 1.4

199:

c/

200

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

2
 3/9/2020

Slide 1.5

201

202

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

Slide 1.6

202:

203

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

3
 3/9/2020

Slide 1.7

t
A B

201 202 c

203-204 204

203-204

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

Slide 1.8

A (as the base) B

205:
2
Year 1 2 3 4 5
2014 2015 2016 2017 2018
Household
686.9 697.2 723.7 716.6 734.5
spending
Index 98.5 100 103.8 102.8 105.3
205.

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

4
 3/9/2020

Slide 1.9

206: Table 3.3 & Table 3.4

month
Jan Feb Mar Apr May Jun Jul
Share A 0.31 0.28 0.31 0.34 0.40 0.39 0.45

Share B 6.34 6.40 6.45 6.52 6.57 6.43 6.65

Index A 91.2 82.3 91.2 100 117.6 114.7 132.4

Index B 97.2 98.2 98.9 100 100.8 98.6 102.0

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

Inflation
Slide 1.10

Discussion on average price in a given selection of goods

and services (consumer basket) and the rate of inflation,
page 208,
187, example and practice problem pages 188-189
208-209: :
Year -1 1 2 3 4 5
2013 2014 2015 2016 2017 2018
Average house price
60 72 89 93 100 106
nominal data: (1)
Annual rate of inflation: (2) 5% 6% 10.7% 7.1% 3.5% 2.3%

Scale factor (3) 1.05 1.06 1.107 1.071 1.035 1.023

Overall scale factor in

0.852 0.903 1 1.071 1.108 1.134
inflation with base 2015: (4)
Overall % change in
-14.8% -9.7% 0% 7.1% 10.8% 13.4%
inflation with base 2015:(5)
Average house price
70 80 89 87 90 93
real data (6): (6) = (1)/ (4)

Key terms page 190,

210, Exercise 3.1* page 193:
213, problems 4, 6, 7
Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

5
 3/9/2020

Slide 1.11

Section 3.2.
Compound interest
Simple and compound interest, future value under annual
compounding and under continuous compounding

and
determining the annual interest rate
based on a nominal interest rate

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

Slide 1.12

216.

218.

217.

218-220.

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

6
 3/9/2020

Slide 1.13

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

Slide 1.14

220,

221,

222, 223.

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

7
 3/9/2020

Slide 1.15

223 224.

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

Slide 1.16

Example Calculating APR

Example of
Computing P= 10
APR nominal rate of interest r(%) = 6.6(%)

Compounding
frequency m S APR
1 10.66 0.066
2 10.67089 0.067089
4 10.676515 0.067651543
12 10.680336 0.068033559
365 10.682203 0.068220344
1000000 10.682267 0.068226715

m=infinity 10.682267 0.068226717

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012

8
 3/9/2020

Slide 1.17

Examples pages 203-204,

224-225, practice problem page 205.
226.

Key terms page 2005.

226.

Exercise 3.2* page 207-208

228-229, problems 1, 3, 5, 7.

Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012