01/06/2023

Terminologies Securely
Communicating
• The person or institution that makes financial resources available to
those who are in need is called a lender or an investor or a creditor.
• The person or institution that avails of the financial resources from the
Math in Finance lender is called a borrower.
GEMATMW (Math in the Modern World)
Teacher: Christopher F. Santos
Cryptography

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Terminologies Securely
Communicating Simple vs. Compound
Communicating Interest
Securely
• For the use of the financial resources, the lender charges the borrower • Simple interest is interest that is computed on the principal.
a certain amount called interest. Interest is a fee paid to the lender • Formulas:
from the borrower’s use of the money lent. 𝐼 = 𝑃𝑟𝑡
• There are two types of interest: simple and compound. 𝐹 = 𝑃 + 𝐼 = 𝑃 + 𝑃𝑟𝑡 = 𝑃(1 + 𝑟𝑡)

Cryptography
• Depositing money in a bank is like lending money to the bank in return
for which bank pays interest.
• Borrowing money from banks or lending institutions requires payment
Cryptography
𝐼:=interest; 𝑃:=principal; 𝑟:=rate (in decimal form); 𝑡:=time (in years)
𝐹 ≔ future/maturity value

of interest. E.g. If PhP10,000 is invested at 10% simple interest for 4 years, determine
• Hence, money has present value and future value. the interest earned 𝐼 and its maturity value 𝐹.
𝐼 = 10,000 0.1 4 = 4,000
𝐹 = 10,000 + 4,000 = 14,000

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Simple vs. Compound

Communicating Interest
Securely Simple vs. Compound
Communicating Interest
Securely
• Other Formulas derived from 𝐼 = 𝑃𝑟𝑡: E.g. (similar to TXB #11 on page 61) How much money must be invested
now in order to have PhP1,280,000 in 5 years if money is worth 12%
𝐼 𝐼 𝐼 simple interest?
𝑃= 𝑟= 𝑡=
𝑟𝑡 𝑃𝑡 𝑃𝑟 𝐹 = 𝑃(1 + 𝑟𝑡)

Cryptography
• Other Formulas derived from 𝐹 = 𝑃 + 𝐼 = 𝑃 + 𝑃𝑟𝑡 = 𝑃(1 + 𝑟𝑡) : Cryptography
𝑃=
𝐹
=
1,280,000
1 + 𝑟𝑡 1 + (0.12)(5)
= PhP800,000

𝐹 𝐹−𝑃 𝐹 1 𝐹−𝑃 E.g. (Textbook #4, p.61) How long will it take a PhP30,000 debt to earn an
𝑃=𝐹−𝐼= 𝐼 =𝐹−𝑃 𝑟= = − 𝑡=
1 + 𝑟𝑡 𝑃𝑡 𝑃𝑡 𝑡 𝑃𝑟 interest of PhP4,500 if the simple interest being charged is 9%?
𝐼 4,500 2
𝐼:=interest; 𝑃:=principal; 𝑟:=rate (in decimal form); 𝑡:= time (in years) 𝐼 = 𝑃𝑟𝑡 ⇒ 𝑡 = = = 1 yrs
𝑃𝑟 (30,000)(0.09) 3
𝐹 ≔ future/maturity value

5 6

Simple vs. Compound

Communicating Interest
Securely Simple vs. Compound
Communicating Interest
Securely
• Compound interest is interest that is computed on the principal and on the
accumulated past interest.
• Formulas: Maturity Value at 𝒓 = 𝟏𝟎%
𝒕
𝑟 Simple Interest Compounded Annually
𝐹 =𝑃 1+ 𝐼 =𝐹−𝑃

Cryptography 0
Cryptography
10,000 10,000
𝑚
𝐹:=future value; 𝑃:=present value; 𝑟:=rate (per year); 𝑡:= time (in yrs);
𝑚 ≔ number of times interest is computed per year
1 11,000 11,000
“annually” 𝑚 = 1; “semi-annually” 𝑚 = 2; “quarterly” 𝑚 = 4; “monthly” 𝑚 = 12 2 12,000 12,100
3 13,000 13,310
E.g. If PhP10,000 is invested at a rate of 10% compounded annually for 4 years,
4 14,000 14,641
determine the interest earned 𝐼 and its maturity value 𝐹.
𝐹 = 10,000 1 + 0.1 = 14,641
𝐼 = 14,641 − 10,000 = 4,641

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Simple vs. Compound

Communicating Interest
Securely Simple vs. Compound
Communicating Interest
Securely
• Formulas: 𝐹 =𝑃 1+ 𝐼 =𝐹−𝑃 Month Semi-Annually, Quarterly,
𝒓 = 𝟏𝟎% 𝒓 = 𝟏𝟎%
E.g. If PhP10,000 is invested at a rate of 10% compounded semi-annually for 2 0 10,000 10,000
years, determine its maturity value 𝐹. 3 10,250

Cryptography
𝐹 = 10,000 1 +
0.1
2
( )( )
= 12,155.06 Cryptography
6
9
10,500 10,506.25
10,768.91
E.g. If PhP10,000 is invested at a rate of 10% compounded quarterly for 2 years, 12 11,025 11,038.13
determine its maturity value 𝐹. 15 11,314.08
( )( )
0.1 18 11,576.25 11,596.93
𝐹 = 10,000 1 + = 12,184.03 21 11,886.86
4
NOTE: The more frequent the compounding, the higher the interest earned. 24 12,155.06 12,184.03

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Simple vs. Compound

Communicating Interest
Securely INTEREST RATE : 10% compounded annually

• Other Formulas derived from 𝐹 = 𝑃 1 + :

𝐹 𝑟 TODAY 4 YEARS AFTER
𝑃= =𝐹 1+
𝑟 𝑚
1+

Cryptography
𝑚
𝐹 Php10,000
𝑟=𝑚 −1 10,000(1.1) = 14,641
𝑃
Your money is accumulated.
𝐹
ln
𝑃
𝑡= 𝑟
𝑚 ln 1 + 𝑟
𝑚 𝐹 =𝑃 1+
𝐹:=future value; 𝑃:=present value; 𝑟:=rate (per year); 𝑡:= time (in yrs); 𝑚
𝑚 ≔ number of times interest is computed per year

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INTEREST RATE : 10% compounded annually

Simple vs. Compound
Communicating Interest
Securely
E.g. (Textbook #18 on page 62) Jen needs to raise Php80,000 in 15 months.
What amount should she set aside now and invest in a fund earning 2%
TODAY
3 YEARS AGO per month to reach her target amount?
𝑟

Cryptography
𝐹 = 𝑃 1+
Php10,000
𝑚
( )( . )
10,000(1.1) = 7,513.15 𝑟 0.02
𝑃 = 𝐹 1+ = 80,000 1 + = PhP78,026.42
Your money is discounted.
𝑚 12

𝑟
𝑃 =𝐹 1+
𝑚

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Annuities
Communicating Securely Classifications ofSecurely
Communicating Annuities
• Some purchases, such as buying a car, a house, a lot, appliances, educational Basis of
plans, insurance plans and funeral plans, require huge amounts of money. ANNUITY
Classification
Nowadays, there is an option for paying on installment. This series of Payment & Simple Annuity General Annuity
payment is referred to as annuity. Interest Payment and interest Payment and interest

Cryptography Cryptography
Intervals intervals are the same intervals are different
• An annuity is a sequence of regular payments made at equal (fixed) intervals Time of Ordinary Annuity Annuity Due
of time and usually in equal amounts. payment Payments are made at the end Payments are made at the start
of each payment interval of each payment interval
• The term of an annuity, 𝑡, is time between the first payment interval and the Duration Annuity Certain Contingent Annuity
last payment interval. Payments start and end at Payments extend over an
definite times indefinite length of time
• The amount of each payment is called the regular/periodic payment 𝑅.
We will limit our discussion to simple annuities, ordinary annuities, and annuity certain.

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Annuities
Communicating Securely Annuities
Communicating Securely
• The amount (future value) of an annuity, 𝐹, is the sum of future values of all E.g. An installment payment for an appliance worth PhP5,000 every month for 6
payments to be made during the entire term of the annuity. months is an annuity with the following elements:
𝑟 periodic payment 𝑅 = Php5,000
1+ −1
𝐹=𝑅 𝑚 term 𝑡 = 6 months

Cryptography Cryptography
𝑟 payment interval = 1 month (i.e. 𝑚 = 12)
𝑚

• The present value of an annuity, 𝑃, is the sum of present values of all

payments to be made during the entire term of the annuity.
𝑟
1− 1+
𝑃=𝑅 𝑚
𝑟
𝑚

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Annuities
Communicating Securely Annuities
Communicating Securely NOTE: 𝑃 = 𝐹 1 + = 12151 1 + = 11,792.77

E.g. Shirley is saving for a vacation trip. She decided to set aside Php2,000 at the E.g. Suppose Shirley would like to know the present value of her monthly
end of each month for 6 months in a fund that gives 6% compounded monthly. deposit of Php 2,000 when interest is 6% compounded monthly. How much is
How much would her savings be after 6 months? the present value of her savings at the end of 6 months?

Cryptography Cryptography
Using the formula, Using the formula,
𝑟 𝑟
1+ −1 1− 1+
𝐹=𝑅 𝑚 𝑃=𝑅 𝑚
𝑟 𝑟
𝑚 𝑚
. .
= 2,000 = 2,000
. .
= 12,151 = 11,792.77

The amount of this annuity is Php 12,151. The present value of this annuity is Php 11,792.77.

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Savings AccountSecurely
Communicating
Assuming an interest rate of 1.5% per annum and the following account
information for one one month, find the amount of interest that would be
credited to the client’s account each month.
Applications
Cryptography
Date Balance
Jan 1, 2021 1,320,000
Jan 10, 2021 1,370,000
Jan 18, 2021 1,365,200
Jan 19, 2021 1,345,920
Jan 25, 2021 1,395,920

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Savings AccountSecurely
Communicating
We need to compute for the average daily balance(ADB). The ADB is determined
by adding the full amount of principal in the account for each day of the period
and diving by the number of days in the interest period.
Savings AccountSecurely
Communicating
We need to compute for the average daily balance(ADB). The ADB is determined
by adding the full amount of principal in the account for each day of the period
and diving by the number of days in the interest period.

Cryptography Cryptography
No. of No. of
Dates Balance Days Accumulated Balance Dates Balance Days Accumulated Balance
01/01 to 01/09 1,320,000 01/01 to 01/09 1,320,000 9
01/10 to 01/17 1,370,000 01/10 to 01/17 1,370,000
01/18 to 01/18 1,365,200 01/18 to 01/18 1,365,200
01/19 to 01/24 1,345,920 01/19 to 01/24 1,345,920
01/25 to 01/31 1,395,920 01/25 to 01/31 1,395,920
TOTAL TOTAL

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Savings AccountSecurely
Communicating
We need to compute for the average daily balance(ADB). The ADB is determined
by adding the full amount of principal in the account for each day of the period
and diving by the number of days in the interest period.
Savings AccountSecurely
Communicating
We need to compute for the average daily balance(ADB). The ADB is determined
by adding the full amount of principal in the account for each day of the period
and diving by the number of days in the interest period.

Cryptography Cryptography
No. of No. of
Dates Balance Days Accumulated Balance Dates Balance Days Accumulated Balance
01/01 to 01/09 1,320,000 9 11,880,000 01/01 to 01/09 1,320,000 9 11,880,000
01/10 to 01/17 1,370,000 01/10 to 01/17 1,370,000 8 10,960,000
01/18 to 01/18 1,365,200 01/18 to 01/18 1,365,200
01/19 to 01/24 1,345,920 01/19 to 01/24 1,345,920
01/25 to 01/31 1,395,920 01/25 to 01/31 1,395,920
TOTAL TOTAL

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Savings AccountSecurely
Communicating
We need to compute for the average daily balance(ADB). The ADB is determined
by adding the full amount of principal in the account for each day of the period
and diving by the number of days in the interest period.
Savings AccountSecurely
Communicating
We need to compute for the average daily balance(ADB). The ADB is determined
by adding the full amount of principal in the account for each day of the period
and diving by the number of days in the interest period.

Cryptography Cryptography
No. of No. of
Dates Balance Days Accumulated Balance Dates Balance Days Accumulated Balance
01/01 to 01/09 1,320,000 9 11,880,000 01/01 to 01/09 1,320,000 9 11,880,000
01/10 to 01/17 1,370,000 8 10,960,000 01/10 to 01/17 1,370,000 8 10,960,000
01/18 to 01/18 1,365,200 1 1,365,200 01/18 to 01/18 1,365,200 1 1,365,200
01/19 to 01/24 1,345,920 6 8,075,520 01/19 to 01/24 1,345,920 6 8,075,520
01/25 to 01/31 1,395,920 7 9,771,440 01/25 to 01/31 1,395,920 7 9,771,440
TOTAL 42,052,160 TOTAL 42,052,160

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Savings AccountSecurely
Communicating Time Deposit Account
Communicating Securely
• The average daily balance (ADB) for the whole month is • Time deposit (a.k.a. certificate of deposit) is a bank product almost the same
as saving account. With time deposit account, your money will be kept by the
Total Amount 42,052,160 bank for a fixed period of time (30 days, 60 days, 90 days or more) for an
= = PhP1,356,521.29
Total No. of Days 31 interest rate higher than savings account.

• The interest is Cryptography

𝐼 = 𝑃𝑟𝑡 = (1,356,521.29)(0.015)
31
= PhP1,728.17
•
Cryptography
Terminating a time deposit account before the maturity date will result to a
penalty from the bank. The documentary stamp tax (DST), which the bank
usually shoulders, will be now passed to the client.
365
• Interest earned on time deposits is subject to withholding tax of 20%.
• Time deposits are covered by the Philippine Deposit Insurance Corp. up to
Php500,000.

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Time Deposit Account

Communicating Securely
• At the expiry of the term, you may choose from the following options,
depending on the bank:
1) Withdraw both the principal and the interest that your savings earned
by the end of the term or the maturity date of the account.
Time Deposit Account
Communicating Securely
E.g. Suppose we opened a Php100,000 time deposit account that earns 2% per
annum. We let it stay there for 32 days. Considering the 20% withholding tax
charged to peso time deposits, the interest income on the account is:

Cryptography Cryptography
2) Take just your earnings and re-invest the principal. 32
3) Re-invest both the original amount and the additional income, and roll 𝐼 = 𝑃𝑟𝑡(0.80) = 100,000 0.02 0.80 = PhP140.27
365
it over for the same term.
Thus, for a Php100,000 money placed for 32 days in a time deposit paying 2%
interest per annum, the total money at the end is Php100,140.27.

NOTE: The convention is usually 365 days but some banks may use 360 days
(Banker’s Rule) in the computation.

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Loans
Communicating Securely One-time Payments
Communicating Securely
A loan is a debt provided by one entity( an individual or an organization) E.g. James borrows PhP700,000 and promises to pay the principal and interest
to another entity at an interest rate. at 15% compounded monthly. Seven years later, how much must he pay?

Manner of Settling Loans 𝑟

Cryptography Cryptography
𝐹 =𝑃 1+
1. One-time payments 𝑚
( )
2. Several regular payments = 700,000 1 +
.

3. Multiple debt and/or payments = 1,987,379.10 pesos

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Several RegularSecurely
Communicating Payments Amortization Schedule
Communicating Securely
E.g. A smartphone is purchased with a down payment of PhP1,000 and the 𝑃 = 12,500 Period Regular Payment Interest Repayment OB
0 12,500
balance will be paid at Php1,075.83 a month for one year. What is its cash price 𝑛 = 𝑚𝑡 = 12
𝑟 1 1,075.83 62.500 1,013.330 11,486.670
if the interest rate is 6% compounded monthly? 𝑖 = = 0.005
𝑚 2 1,075.83 57.433 1,018.397 10,468.273

Given: 𝐷 = PhP1,000 𝑟 𝑅 = 1,075.83 3 1,075.83 52.341 1023.489 9,444.784

Cryptography Cryptography
1− 1+ 4 1,075.83 47.224 1,028.606 8,416.178
𝑅 = PhP1,075.83 𝑃=𝑅 𝑚
𝑡 = 1 year 𝑟 5 1,075.83 42.081 1,033.749 7,382.429
𝑚 6 1,075.83 36.912 1,038.918 6,343.511
𝑚 = 12 7 1,075.83 31.718 1,044.112 5,299.399
.
𝑟 = 0. 06 = 1,075.83 8 1,075.83 26.497 1,049.333 4,250.066
.
= 12,500 9 1,075.83 21.250 1,054.580 3,195.486
Find: 𝐶 = 𝐷 + 𝐵 = 𝐷 + 𝑃 10 1,075.83 15.977 1,059.853 2,135.633
11 1,075.83 10.678 1,065.152 1,070.481
𝐶 = 𝐷 + 𝑃 = 13,500 12 1,075.83 5.352 1,070.478 0.003

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Outstanding Balance
Communicating (OB)
Securely Outstanding Balance
Communicating (OB)
Securely
• Prospective Method
Outstanding balance after the kth payment Period Regular Payment Interest Repayment OB
0 12,500
𝑘=6
𝑃 = 12,500 1 1,075.83 62.500 1,013.330 11,486.670
( ) ( )
𝑛 = 12 2 1,075.83 57.433 1,018.397 10,468.273
Prospective Method: 𝑂𝐵 = 𝑅

Cryptography Cryptography
𝑖 = 0.005 3 1,075.83 52.341 1023.489 9,444.784
𝑅 = 1,075.83 4 1,075.83 47.224 1,028.606 8,416.178
( ) 5 1,075.83 42.081 1,033.749 7,382.429
1 − (1.005)
𝑂𝐵 = 1075.83 6 1,075.83 36.912 1,038.918 6,343.511
( )
Retrospective Method: 𝑂𝐵 = 𝑃(1 + 𝑖) − 𝑅 0.005 7 1,075.83 31.718 1,044.112 5,299.399
8 1,075.83 26.497 1,049.333 4,250.066

1 − (1 + 𝑖) ( ) 9 1,075.83 21.250 1,054.580 3,195.486

𝑂𝐵 = 𝑅 10 1,075.83 15.977 1,059.853 2,135.633
𝑖
11 1,075.83 10.678 1,065.152 1,070.481
12 1,075.83 5.352 1,070.478 0.003

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Outstanding Balance
Communicating (OB)
Securely Multiple Debts/Payments
Communicating Securely
• Retrospective Method Ana owes Juan two debts: Php200,000 due in 2 years with 9% interest
Period Regular Payment Interest Repayment OB
0 12,500
compounded quarterly and Php600,000 due in 5 years without interest. She
𝑘=6 talked to Juan and promised to settle these obligations by making a single
𝑃 = 12,500 1 1,075.83 62.500 1,013.330 11,486.670
𝑛 = 12 2 1,075.83 57.433 1,018.397 10,468.273 payment on the 4th year. If money is worth 12% compounded monthly, how

Cryptography Cryptography
3 1,075.83 52.341 1023.489 9,444.784
𝑖 = 0.005
𝑅 = 1,075.83 4 1,075.83 47.224 1,028.606 8,416.178
much is this single payment?
5 1,075.83 42.081 1,033.749 7,382.429
𝑂𝐵 = 12500(1.005) 6 1,075.83 36.912 1,038.918 6,343.511 TODAY

−1075.83
(1.005) − 1 7 1,075.83 31.718 1,044.112 5,299.399 200K +
0.005 8 1,075.83 26.497 1,049.333 4,250.066 Interest 600K
9 1,075.83 21.250 1,054.580 3,195.486
(1 + 𝑖) − 1 10 1,075.83 15.977 1,059.853 2,135.633 0 1 2 3 4 5
𝑂𝐵 = 𝑃(1 + 𝑖) − 𝑅 11 1,075.83 10.678 1,065.152 1,070.481
𝑖
12 1,075.83 5.352 1,070.478 0.003

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Multiple Debts/Payments
Communicating Securely Multiple Debts/Payments
Communicating Securely
TODAY TODAY
200K +
Interest 200K(1.0225) ( )
600K 600K

Cryptography Cryptography
0 1 2 3 4 5 0 1 2 3 4 5

9% interest compounded quarterly Due Amount on the 2nd year 𝑟

𝐹 =𝑃 1+
*9% interest compounded quarterly 𝑚

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Multiple Debts/Payments
Communicating Securely Multiple Debts/Payments
Communicating Securely

200K(1.0225) ( ) TODAY 200K(1.0225) ( ) ?

600K 600K

Cryptography Cryptography
0 1 2 3 4 5 0 1 2 3 4 5
𝑥

? Single payment on
the 4th year

Money is worth 12% compounded monthly.

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Multiple Debts/Payments
Communicating Securely Multiple Debts/Payments
Communicating Securely
TODAY 200K(1.0225) ( ) ? = 200,000(1.0225) ( ) (1.01) ( ) = 303423.70 TODAY 200K(1.0225) ( ) ? 600K

Cryptography Cryptography
0 1 2 3 4 5 0 1 2 3 4 5
𝑥 𝑥

𝑟
𝐹 =𝑃 1+
𝑚
Money is worth 12% compounded monthly.

45 46

Multiple Debts/Payments
Communicating Securely Multiple Debts/Payments
Communicating Securely

532,469.54 = 600000(1.01) ( )= ?
600K

303,423.70

Cryptography Cryptography
0 1 2 3 4 5
532,469.54
𝑥

0 1 2 3 4 5
𝑥
𝑟
𝑃 =𝐹 1+
𝑚
Equation of Values: Total Debt = Total Payment

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Multiple Debts/Payments
Communicating Securely

For most people, loans are

303,423.70
unavoidable. But you must be
Cryptography
532,469.54

responsible to pay your dues.

TODAY

0 1 2 3 4 5
𝑥
𝑥 = 303,423.70 + 532,469.54
= 835,893.24
Total Debt
Total Payment

49 50

“Stocks and Bonds”

Communicating Video
Securely “Stocks and Bonds”
Communicating Video
Securely

Cryptography Cryptography

NOTE: Total Charges = 0.295% of Buy Gross

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“Stocks and Bonds”

Communicating Video
Securely “Stocks and Bonds”
Communicating Video
Securely

Cryptography Cryptography

NOTE: Total Charges = 0.895% of Sell Gross

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“Stocks and Bonds”

Communicating Video
Securely “Stocks and Bonds”
Communicating Video
Securely

Cryptography Cryptography

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“Stocks and Bonds”

Communicating Video
Securely “Stocks and Bonds”
Communicating Video
Securely

Cryptography Cryptography

57 58

“Stocks and Bonds”

Communicating Video
Securely “Stocks and Bonds”
Communicating Video
Securely

Cryptography Cryptography

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“Stocks and Bonds”

Communicating Video
Securely “Stocks and Bonds”
Communicating Video
Securely

Cryptography Cryptography

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“Stocks and Bonds”

Communicating Video
Securely “Stocks and Bonds”
Communicating Video
Securely
Buy Gross (BG) = Last × Shares

Total Cost (TC) = 1.00295 × BG

= BG + Total Buy Charges Buy Gross (BG)

Cryptography Cryptography
Average Price = TC ÷ Shares
= Price × Quantity

Total Sell Charges Fees = 0.00295 × BG

= 0.00895 × Sell(=Buy) Gross

Market Value (MV) = 0.99105 × BG Total = 1.00295 × BG

= BG + Fees
Profit = MV – TC

% Profit = Profit ÷ TC

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“Stocks and Bonds”

Communicating Video
Securely “Stocks and Bonds”
Communicating Video
Securely

Cryptography Cryptography

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