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IBMathsDPApplications & Interpretation (AI)HLFlashcards1. Number & AlgebraFinancial Applications

Financial Applications (DP IB Applications & Interpretation (AI))

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  • What is simple interest?

    Simple interest is interest paid only on the initial investment, not on accumulated interest.

  • True or False?

    Compound interest is interest that is paid both on the initial investment and on any interest that has already been paid.

    True.

    Compound interest is interest that is paid both on the initial investment and on any interest that has already been paid.

  • True or False?

    Compound interest results in higher returns than simple interest over time.

    True.

    Compound interest results in higher returns than simple interest over time.

  • State the formula for compound interest.

    The formula for compound interest is F V equals P V cross times open parentheses 1 plus fraction numerator r over denominator 100 k end fraction close parentheses to the power of k n end exponent

    Where:

    • F V is future value

    • P V is present value

    • n is the number of years

    • k is the number of compounding periods per year

    • r percent sign is the nominal annual rate of interest

    This equation is in the exam formula booklet. The financial applications on your GDC can also calculate compound interest without having to use this formula.

  • What is depreciation?

    Depreciation is when the value of something decreases over time.

  • True or False?

    The formula for compound depreciation is the same as for compound interest.

    False.

    The formula for compound depreciation is similar to the one for compound interest.

    For compound depreciation the formula is F V equals P V cross times open parentheses 1 minus r over 100 close parentheses to the power of n

    Where:

    • F V is future value

    • P V is present value

    • n is the number of years

    • r percent sign is the annual rate of depreciation

    This equation is not in the exam formula booklet.

  • What is the nominal annual rate of interest?

    The nominal annual rate of interest is the stated interest rate without taking into account compounding periods.

  • True or False?

    Compounding monthly means k = 12 in the compound interest formula.

    True.

    Compounding monthly means k = 12 in the compound interest formula, because there are 12 months in a year.

  • What is amortisation?

    Amortisation is the process of repaying a loan over a fixed period of time.

  • True or False?

    In amortisation, the amount of interest paid remains constant throughout the loan period.

    False.

    In amortisation, the amount of interest paid decreases as the loan balance decreases.

  • Define the term mortgage.

    A mortgage is a loan taken out to buy a home.

  • True or False?

    In the finance solver, PV (Present Value) is entered as a positive number for loans.

    True.

    In the finance solver, PV (Present Value) is entered as a positive number for loans.

  • What is an annuity?

    An annuity is a fixed sum of money paid to someone at specified intervals over a fixed period of time.

  • What does FV (future value) typically equal in an annuity calculation?

    FV (future value) typically equals zero in an annuity calculation, as the balance at the end of the payment period will be zero.

  • True or False?

    In amortisation, more of the repayment goes towards interest at the end of the loan period.

    False.

    In amortisation, more of the repayment goes towards interest at the beginning of the loan period.

  • What is the main difference between amortisation and annuities in terms of cash flow?

    In amortisation, you are paying money out, while with annuities, you are receiving money.

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    1. Topic 1

      Number Toolkit

    2. Topic 2

      Exponentials & Logs

    3. Topic 3

      Sequences & Series

    4. Topic 4

      Financial Applications

    5. Topic 5

      Complex Numbers

    6. Topic 6

      Further Complex Numbers

    7. Topic 7

      Matrices

    8. Topic 8

      Eigenvalues & Eigenvectors

    1. Topic 1

      Linear Functions & Graphs

    2. Topic 2

      Further Functions & Graphs

    3. Topic 3

      Modelling with Functions

    4. Topic 4

      Functions Toolkit

    5. Topic 5

      Transformations of Graphs

    6. Topic 6

      Modelling with Logarithmic, Logistic & Piecewise Functions

    1. Topic 1

      Geometry Toolkit

    2. Topic 2

      Geometry of 3D Shapes

    3. Topic 3

      Trigonometry

    4. Topic 4

      Trigonometric Identities & Equations

    5. Topic 5

      Voronoi Diagrams

    6. Topic 6

      Matrix Transformations

    7. Topic 7

      Vector Properties

    8. Topic 8

      Vector Equations of Lines

    9. Topic 9

      Modelling with Vectors

    10. Topic 10

      Graph Theory

    1. Topic 1

      Statistics Toolkit

    2. Topic 2

      Correlation & Regression

    3. Topic 3

      Non-linear Regression

    4. Topic 4

      Probability

    5. Topic 5

      Probability Distributions

    6. Topic 6

      Random Variables

    7. Topic 7

      Binomial Distribution

    8. Topic 8

      Normal Distribution

    9. Topic 9

      Combinations of Normal Distributions & Sample Mean Distributions

    10. Topic 10

      Poisson Distribution

    11. Topic 11

      Hypothesis Testing using the Chi-squared Distribution

    12. Topic 12

      Hypothesis Testing for Population Parameters

    13. Topic 13

      Transition Matrices & Markov Chains

    1. Topic 1

      Differentiation

    2. Topic 2

      Further Differentiation

    3. Topic 3

      Integration

    4. Topic 4

      Further Integration

    5. Topic 5

      Kinematics

    6. Topic 6

      Differential Equations

    7. Topic 7

      Coupled & Second Order Differential Equations