Mathematics in The Modern World
Mathematics in The Modern World
Mathematics in The Modern World
Lesson 1………………………………………………………………………………..……1-9
Patterns in Nature and Regularities in the World., Examples of patterns in Nature., The Fibonacci
Sequence., The Importance of Mathematics in Life., Nature of Mathematics., Roles of Mathematics in
some Disciplines., Appreciating Mathematics as Human Endeavor., How can be Mathematics so
Universal?.
Lesson 2………………………………………………..…………………………………10-13
Mathematical Language and Symbols., The four basic concepts of Mathematics.
Lesson 3…………………………………………………………………………...…...…14-16
Problem Solving and Reasoning., Kinds of Reasoning., If then statements and ConversesPolya's steps.
Lesson 4…………...………………………………………………………………...……17-20
Geometric Design., Types of Geometric Transformation., Use of Geometric Design.
Lesson 5……………………………………...……………………………...……………20-25
The Codes., Binary Codes., BITS and BYTES., Computing the Binary., Error detecting and its types., The
Parity Check.
Lesson 6…………...……………………………………………………..……………….25-34
Linear Programming., Linear Inequality., Geometry of Linear Programming., Hyperplanes and Half
space., Polyhedron., Linear programming problem.
Lesson 7…………………………………………………………………………………..34-39
Mathematics of Finance., Simple and Compound Interest., Simple Interest-Future and Present Value.,
Simple discount notes., Compound Interest., Compound Interest-Present Value., Compound Interest
Using Logs.
Lesson 1
Mathematics plays a crucial role in the modern world, underpinning much of the
technology and scientific research that shapes our society. It is used in fields such as finance,
engineering, physics, computer science, and many others. For example, mathematical
algorithms are used in search engines, GPS navigation systems, and image recognition
software. In finance, mathematical models are used to evaluate investment opportunities
and measure risk. In physics, mathematical equations are used to describe the behavior of
the natural world. Additionally, mathematics is also used in many areas of everyday life, such
as cooking, shopping, and playing games.
In this chapter, you will learn to identify patterns in nature and regularities in the world,
understand the importance of Mathematics in your daily life, articulate the nature of
mathematics, its expression, representation, and usage and discuss the role of mathematics
in various disciplines. By the end of this chapter, you should appreciate the significance of
mathematics as a human endeavor.
Number patterns and counting are closely related, as counting occurs when there is a
pattern. In turn, when there is counting, there is logic. Therefore, patterns in nature often
align with logical set-ups. Familiar patterns such as 2, 4, 6, and 8 are among the first patterns
learned in the early years. Patterns can take many forms including sequential, spatial,
temporal, and linguistic. For example, the most basic pattern is the sequence of dates in the
calendar, from 1 to 30. In the world, regularity is the fact that the same thing always
happens in the same circumstances. The patterns in nature are regularities of form found in
the natural world and can be mathematically modeled. Examples of natural patterns include
symmetries, tree spirals, meanders, weaves, foams, tessellations, cracks, and stripes. A
geometric pattern is a type of pattern created from geometric shapes, often repeated like a
wallpaper design.
EXAMPLES OF PATTERNS IN NATURE
According to the American Association for the Advancement of Science (1990), mathematics
relies on both logic and creativity, and it is pursued for both practical purposes and its
intrinsic interest. This means that mathematics is a field that requires both logical thinking
and problem-solving skills, as well as the ability to think creatively and abstractly. The
application of mathematics can be found in many fields, including science, engineering,
finance, and technology, as well as in everyday life. Additionally, the study of mathematics
can also be pursued for its own sake, as an intellectual pursuit that can be appreciated for its
beauty and elegance. Mathematics is a subject that has many practical applications and it
can be used to solve real-world problems. It's also an important tool for critical thinking and
problem-solving which are valuable skills in any profession.
Just like science, math is also everywhere. It explains everything to us just like your daily
routine, the time and the date of execution, and also whatever you buy in the market. It has
become essential for us to use numbers or digits in our daily lives because, without them, we
are just a product of nothing, we will become stupid because we don’t know how to count or
use math. Everywhere we see all kinds of examples of people who use math in different ways
not only in the country they live in but also expand out in the entire universe. Scientists use
math to tell what time it is or to measure how far exactly a star is. That is why it is called
universal because it can be used in a lot of ways. - Kevin Mamaspas
Lesson 2
Mathematical Language and Symbols
Mathematical language and symbols are a way to express mathematical concepts and ideas
clearly and concisely. This language is composed of a set of symbols, such as numbers,
letters, and operators, which are used to represent mathematical operations and
relationships. For example, the symbol "+" represents an addition, while the symbol "="
represents equality. The symbols and notation used in mathematics have been developed
over time to make it easier to understand and communicate mathematical ideas. They allow
mathematicians to express complex concepts in a compact and easily understandable form,
and they also allow for the efficient manipulation of mathematical expressions. The use of
mathematical language and symbols also enables mathematical proofs and solutions to be
written in a precise and unambiguous way, which is important for the development of
mathematical knowledge.
The language of Mathematics makes it easy to express the kinds of symbols, syntax, and
rules that mathematicians like to do characterized by the following:
B O D M A S
brackets order divide multiply add subtraction
() √x x2 ÷ x + -
P E M D A S
parenthesis exponents multiply divide add subtract
The order of operations, also known as BODMAS or PEMDAS, is a set of rules that prioritize
the sequence of operations in a mathematical expression. It is important to follow these
rules to ensure that mathematical expressions are evaluated correctly. The acronym
BODMAS stands for Bracket, Of, Division, Multiplication, Addition, and Subtraction. PEMDAS
stands for Parentheses, Exponents, Multiplication, Division, Addition, and Subtraction. Both
acronyms refer to the same order of operations and the order of priority of the operation.
As you described, the order of operations starts with simplifying everything inside the
parentheses first, then simplifying an exponential number, then performing any
multiplication and division from left to right, and finally performing any addition and
subtraction from left to right.
It's worth noting that when the operations have the same priority, such as multiplication and
division or addition and subtraction, the operations should be performed from left to right.
By following these rules, one can avoid confusion and errors in solving mathematical
problems and also it helps to ensure that mathematical expressions are evaluated
consistently and correctly.
The four basic concepts of Mathematics
Sets Relation Function Binary Function
Who is Polya?
George Polya was a Hungarian mathematician and author of several influential books
on problem-solving and mathematical education. He is best known for his work on
heuristics, which are strategies for solving problems, and for his book "How to Solve It",
which is widely used in math and computer science education.
Always remember;
In summary, critical thinking, the scientific method, and Polya's problem-solving
method are effective ways to arrive at accurate conclusions by evaluating information and
arguments, formulating hypotheses and testing them, breaking down a problem into smaller
subproblems, and identifying patterns and connections. Using these methods in daily life
helps make informed decisions and avoid being misled by inaccurate information.
Lesson 4
Geometric Design
Geometric design in mathematics is the study of the use of
geometric shapes, figures, and patterns in various fields, such as
architecture, engineering, and computer graphics. It involves
the application of mathematical principles, such as
measurement, symmetry, and optimization, to the design and
creation of structures and shapes. In the modern world,
geometric design is used in a wide range of industries, including
transportation, construction, and product design. It also plays an important role in
computer-aided design (CAD) and computer-aided manufacturing (CAM) systems, as well as
in the creation of virtual and augmented reality environments.
Geometric concepts are fundamental principles and ideas used in the study of geometry.
Some common geometric concepts include:
● Points: A point is an element of a geometric space that represents a location and has
no size or shape.
● Lines: A line is a one-dimensional geometric object that extends infinitely in both
directions.
● Angles: An angle is the measure of the amount of rotation between two lines that
share a common point, or vertex.
● Triangles: A triangle is a polygon with three sides and three angles.
● Quadrilaterals: A quadrilateral is a polygon with four sides and four angles.
● Circles: A circle is a two-dimensional geometric object consisting of all points that are
the same distance from a central point.
● Perimeter: The perimeter of a shape is the sum of the lengths of all its sides.
● Area: The area of a shape is the amount of space it occupies.
● Volume: The volume of a three-dimensional shape is the amount of space it takes up.
● Transformations: Transformations are changes made to the position, size, or shape of
a geometric figure.
● Symmetry: Symmetry is the property of a shape that remains unchanged under
certain operations or transformations.
● Congruence: Congruence refers to the property that two shapes are identical in size
and shape.
● Similarity: Similarity refers to the property that two shapes are the same shape but
not necessarily the same size.
These concepts are used in various branches of mathematics, physics, engineering, and
many more fields.
Analyzing geometric shapes according to the level of geometric thinking can be done
through the following steps:
1. Recognition: The first step is to identify and recognize the basic properties of the
shape, such as its name, number of sides, angles, and other characteristics. This level
of thinking is known as "recognition" and is considered the most basic level of
geometric thinking.
2. Analysis: Once the basic properties of the shape have been identified, the next step
is to analyze the shape in more detail. This might involve measuring and comparing
its sides, angles, and other characteristics to other shapes. This level of thinking is
known as "analysis" and is considered a more advanced level of geometric thinking.
3. Synthesis: The next level of geometric thinking is "synthesis" which is creating new
shapes or figures using the known ones, this could be done by combining, dividing,
or modifying the shapes in different ways.
4. Evaluation: The final level of geometric thinking is "evaluation" which is to make
judgments about the geometric figures based on the knowledge acquired from the
previous steps. This can include making comparisons, drawing conclusions, or
identifying patterns and relationships among the shapes.
It's important to note that individuals may think differently and may not follow a linear
progression through these levels and that some levels of thinking may be more developed
than others.
It's important to note that the use of geometric patterns and designs is not limited to these
examples, and they can be used in many other fields as well.
Lesson 5
The Codes
Codes in mathematics refers to the use of mathematical algorithms and techniques to
encrypt and decrypt information. These codes are used to secure sensitive information, such
as financial data or personal information so that it can be transmitted or stored securely. In
the modern world, codes and encryption play a crucial role in keeping information secure in
various fields such as e-commerce, banking, and government communications.
There are many different types of codes and encryption methods used in modern
mathematics, including:
1. Symmetric-key encryption: This type of encryption uses the same key for both
encrypting and decrypting the information.
2. Public-key encryption: This type of encryption uses two different keys, one for
encryption and one for decryption. The encryption key is made publicly available,
while the decryption key is kept private.
3. Hash functions: These are mathematical functions that take an input (or 'message')
and return a fixed-size string of characters, which is the 'digest' or 'hash value'. They
are used to ensure the integrity and authenticity of data by detecting changes to the
original message.
4. Error-correcting codes: These codes are used to detect and correct errors that may
occur during the transmission or storage of data.
5. Steganography: This is the practice of hiding a message within another message or
image.
These codes are used in various fields such as computer science, network security,
cryptography, and telecommunications. With the increasing reliance on digital
communications and online transactions, the importance of codes and encryption in
mathematics is likely to continue to grow in the
future.
What are Binary codes?
- Binary codes are a way of representing
information using only two symbols,
typically 0 and 1. These codes are used in
digital systems, such as computers and
digital devices, to represent and
manipulate data. Binary code is also
known as "machine code" or "computer
code" as it is the lowest level of
programming language and it is the
language that the computer understands.
In a binary code, each digit (bit) represents a power of 2, starting from 2^0 for the rightmost
bit. For example, the binary number "101" represents the decimal number 5 (12^2 + 02^1 +
1*2^0). This allows computers to represent and process data in a way that is simple and
efficient, as all data can be represented as a series of ones and zeroes. Binary codes are used
in many areas of computer science and engineering, including computer programming, data
storage, and digital communications. They are also used in digital logic and digital
electronics, such as digital circuits, digital signal processing, and digital control systems. In
short, binary codes are a way of representing data in a digital system, it's a language that the
computer understands and it's the fundamental building block of the digital world.
Binary codes are a type of code that uses only two symbols, typically 0 and 1, to represent
information. These codes are used in digital systems, such as computers and digital devices,
to represent and manipulate data.
Some examples of binary codes include:
1. ASCII (American Standard Code for Information Interchange): This code is used to
represent characters and symbols in a computer. Each character is represented by a
unique combination of 8 binary digits (bits). For example, the letter "A" is
represented by the binary code 01000001.
2. Unicode: This code is similar to ASCII but it uses 16 bits to represent characters, it
includes a much wider range of characters, including those from non-English
languages.
3. Gray Code: This code is used to minimize the number of changes required when
transitioning from one number to another. It is commonly used in digital to analog
converters and encoders.
4. Huffman coding: this method is used for lossless data compression, it assigns short
codewords to more frequently occurring characters, and longer codewords to less
frequently occurring characters.
5. Error-correcting code: these codes are used to detect and correct errors that may
occur during the transmission or storage of data, such as Hamming code and
Reed-Solomon codes.
These are just a few examples of binary codes that are used in modern technology, there are
many other codes and coding schemes used in different fields such as image and video
compression, data storage, and communications.
An example of converting a letter to binary code is using the ASCII (American Standard Code
for Information Interchange) code.
The ASCII code is a standardized system that assigns a unique binary code to each character
and symbol on a keyboard. For example, the letter "A" is represented by the binary code
01000001. This can be broken down as follows:
● The first bit is 0, indicating that it is not an extended character
● The next 7 bits (from the 2nd bit to the 8th bit) are 01000001, which corresponds to
the decimal number 65, which represents the letter "A" in the ASCII table.
Another example, let's say you want to convert the letter "Z" to binary.
The ASCII code for the letter "Z" is 90 in decimal, which is 1011010 in binary.
It's worth noting that there are different ways of encoding letters to binary, such as UTF-8 or
UTF-16, which uses more than 8 bits to represent a character and includes a much wider
range of characters, including those from non-English languages.
Lesson 6
Linear Programming
Linear programming is a method of mathematical optimization that is used to find the best
solution to a problem that can be expressed as a linear function. It is a technique used to
optimize a linear objective function, subject to constraints represented by linear equations
or inequalities. Linear programming is used in a wide range of fields, including business,
economics, and operations research, to make decisions about the allocation of limited
resources.
In the modern world, linear programming is used in various fields such as finance,
manufacturing, transportation, and logistics. It is used to solve problems such as:
1. Production scheduling: Linear programming can be used to optimize the production
schedule for a manufacturing facility, to minimize costs and maximize profits.
2. Portfolio optimization: Linear programming can be used to optimize the mix of
investments in a portfolio, to maximize returns and minimize risk.
3. Resource allocation: Linear programming can be used to optimize the allocation of
resources, such as labor, materials, and equipment, to achieve specific goals.
4. Traffic routing: Linear programming can be used to optimize the routing of vehicles
and other transportation assets, to minimize costs and maximize efficiency.
5. Energy planning: Linear programming can be used to optimize the use of energy
resources, minimize costs and maximize sustainability.
In summary, linear programming is a powerful mathematical tool that helps decision-makers
to optimize the use of limited resources, it helps to achieve the best outcome under certain
constraints. It's a widely used technique in many areas of the modern world, from business
and finance to transportation and logistics.
Examples:
- Supermarket chains use linear programming to determine which warehouses should ship,
which product, and where to store. Many businesses, industries, and government agencies
use linear programming successfully. Businesses use it to determine the best way to manage
personnel and workloads in a specific job.
The Linear Inequalities or Inequality tells us about the relative size of two values. We call
things like these inequalities (because they are not “equal”). The symbol “<” is read as “is
less than” and “>” is read as “is greater than”. The symbols like “<” and “>” read as “is
less than or equal to” and "is greater than or equal to” respectively, are also used.
The Linear Inequalities or Inequality tells us about the relative size of two values. We call
things like this inequalities (because they are not “equal”). The symbol “<” is read as “is less
than” and “>” is read as “is greater than”. The symbols like “<” and “>” read as “is less than
or equal to” and "is greater than or equal to” respectively, are also used.
Convex Sets
Definition 3: A set S Є
R n is convex if for any
x, y Є S, and any λx +
(1 - λ)y Є S.
A convex set is a set of
points such that, given
any two points A, B in
that set, the line AB
joining them lies
entirely within that
set. That is why the
left plot is convex and
the right plot is
non-convex.
Example 1: Solve the following linear programming problem using the graphical method.
Minimize: Z = 5x + 4y
4x + y > 40
2x + 3y > 90
x, y > 0
Solution: Using the constraints we get the equations of the lines as 4x + y = 40 and 2x + 3y =
90. 4x + y = 40 passes through (0, 40) and (10, 0). Any point lying on or above this line
satisfies 4x + y > 40. 2x + 3y = 90 passes through (0, 30) and (45, 0). Any point lying on or
above this line satisfies 2x + 3y > 90.
b) A horizontal line
<, then shade below
>, then shade above
Step 6. Check if there are still negative values in the third row
If a negative indicator is still present, repeat steps 4 and 5. If no negative indicators are
present, the maximum of the objective function has been reached.
x y s1 s2 P
1/3 1 1/3 0 0 10 {10/(1/3)} = 300
5/3 0 -1/3 1 0 10 {10/(5/3)} = 60 smaller
-5/3 0 4/3 0 1 40
4 Components of a Model
1. Objective - linear programming algorithms require that a single goal or objective be
specified. The objective function is a linear mathematical relationship that describes
the objective of the firm in terms of the decision variables.
2. Decision Variables- are mathematical symbols that represent levels of activity by the
firm. These represent choices available to the decision maker in terms of amounts of
either inputs or outputs
3. Constraints- are also linear relationships of the decision variables; they represent the
restrictions placed on the firm by the operating environment. The restrictions can be
in the form of limited resources or restrictive guidelines.
4. Parameters- numerical values that are included in objective functions and
constraints.
Assumptions on Linear Programming Models:
● Linearity- the impact of decision variables is linear in constraints and the objective
function.
● Divisibility- non-integer values of decision variables are acceptable.
● Certainty- values of parameters are known and constant.
● Non-negativity- negative value of decision variables is unacceptable.
Maximization Problem
Example: An appliance manufacturer produces two models of electric fans: a stand fan and a
desk fan. Both models require fabrication and assembly work. Each stand fan uses 4 hours of
fabrication and 2 hours of assembly work. While each desk fan uses 2 hours of fabrication
and 6 hours of assembly work. There are 600 fabrication hours available per week and P480
hours of assembly work. Each stand fan contributes P400 to profits and each desk fan
contributes P300 to profits. How many stand fans and desk fans must the manufacturer
produce to maximize the profit?
Solution:
Decision Variables:
Let x = several stand fans to produce
y = the number of desk fans to produce
By tabulating first, the information about the problem, we may come out with this table:
Product Fabrication time Assembly Work time Profit
Steps:
Assign decision variables for the given products.
1. Set up the objective function and the constraints in a mathematical format.
2. Plot the constraints on the xy-plane after converting the inequality sign with an equal sign.
3. Identify the feasible solution area.
4. Substitute the coordinates at the points of intersection of the feasible solution area to the
objective function.
5. Formulate your decision by choosing the order that gives the highest value for
maximization and the lowest value if it is minimization.
Minimization Problem
Example: A dietitian has learned from a nutrition book that his family needs at least 300
grams of protein and at least 60 milligrams of iron per day for sound health. These nutrients
can be obtained from meat and vegetable products. Each pound of meat costs an average of
P60 and contains an average of 150 grams of protein and 15 grams of iron while each pound
of vegetable costs P15 and has 10 grams of protein and 5 grams of iron. He wants to
determine the quantities of food that meet the nutritional requirements at the least cost.
Solution:
Decision Variables:
Let x = several pounds of meat
y = several pounds of vegetable
LP Model:
Lesson 7
Mathematics of Finance
The mathematics of finance involves the use of mathematical techniques to model and
analyze financial systems and markets. It is a broad field that encompasses various areas
such as portfolio theory, risk management, financial derivatives, and asset pricing. Some of
the key concepts in the mathematics of finance include:
1. Time value of money: This concept states that money has a different value at
different points in time, taking into account factors such as inflation and interest
rates.
2. Interest: Interest is the cost of borrowing money, and it is calculated as a percentage
of the principal amount.
3. Compound interest: This is interest that is calculated not only on the original
principal but also on the accumulated interest from previous periods.
4. Annuities: An annuity is a series of payments made at regular intervals, such as
monthly or annually.
5. Bond pricing: Bonds are debt securities issued by companies or governments, and
the price of a bond is determined by the interest rate, the term of the bond, and the
creditworthiness of the issuer.
6. Options: An option is a contract that gives the buyer the right, but not the obligation,
to buy or sell an underlying asset at a specific price and date.
7. Futures: A future is a contract to buy or sell an underlying asset at a specific price and
date in the future.
8. Portfolio optimization: The mathematics of finance also includes the study of how to
optimize the mix of investments in a portfolio, to maximize returns and minimize risk.
In summary, The mathematics of finance is a broad field that encompasses various areas
such as portfolio theory, risk management, financial derivatives, and asset pricing. It's
important to understand and use mathematical concepts and techniques to model and
analyze financial systems and markets.
Simple and Compound Interest
- Simple interest and compound interest are two ways of calculating the interest
earned on a principal amount of money over a certain period.
Simple interest is calculated as the product of the principal, the interest rate, and the time.
The formula for simple interest is: Simple Interest = Principal x Interest Rate x period
- For example, if you invest $1000 at a simple interest rate of 5% per year for 2 years,
the simple interest earned would be $100 ($1000 x 0.05 x 2).
Compound interest, on the other hand, is calculated on the principal amount and the
accumulated interest from previous periods. The formula for compound interest is:
Compound Interest = Principal x (1 + Interest Rate)^Time Period - Principal
- For the same example, if you invest $1000 at a compound interest rate of 5% per
year for 2 years, the compound interest earned would be $102.50. This is because, in
the first year, the interest earned would be $50 ($1000 x 0.05) and in the second
year, the interest would be calculated on the new balance of $1050 ($1000 + $50)
resulting in $52.50 ($1050 x 0.05).
In summary, Simple interest is calculated only on the principal amount while Compound
interest is calculated on the principal and the accumulated interest from previous periods.
Compound interest is generally higher than simple interest over longer periods due to the
compounding effect which makes the interest grow exponentially.
Simple Interest-Future Value
- The future value (FV) of an investment with simple interest is the amount of money
that the investment will be worth at a certain point in the future, assuming the
interest is not reinvested. The formula for calculating the future value of a simple
interest investment is FV = Principal x (1 + Interest Rate x period)
For example, if you invest $1000 at a simple interest rate of 5% per year for 2 years, the
future value would be $1100 ($1000 x (1 + 0.05 x 2)).
It is important to note that in simple interest, the interest earned is not added to the
principal and the interest is not compounded. Therefore, the future value of an investment
with simple interest is always equal to the principal plus the interest earned. In summary,
The future value of an investment with simple interest is the amount of money that the
investment will be worth at a certain point in the future, assuming the interest is not
reinvested. It is calculated by multiplying the principal by (1 + Interest Rate x Time Period).
Simple Interest-Present Value
- The present value (PV) of an investment with simple interest is the current value of
an investment, taking into account the future value and the time value of money. It
represents how much money you would need to invest today to receive a certain
future value, assuming a simple interest rate.
The formula for calculating the present value of a simple interest investment is:
- PV = FV / (1 + Interest Rate x period). Where FV is the future value of the investment
and Interest Rate and Period are the interest rate and period for the investment.
- For example, if you want to invest $1000 in 2 years at a simple interest rate of 5% per
year, the present value would be $952.38 ( $1000 / (1 + 0.05 x 2) ).
It is important to note that in simple interest, the interest earned is not added to the
principal, and the interest is not compounded. Therefore, the present value of an investment
with simple interest is always equal to the future value divided by (1 + Interest Rate x period)
In summary, The present value (PV) of an investment with simple interest is the current
value of an investment, taking into account the future value and the time value of money.
It's calculated by dividing the future value by (1 + Interest Rate x period) where FV is the
future value, Interest rate and Period are the interest rate and period for the investment.
Simple discount notes
- Simple discount notes, also known as promissory notes, are financial instruments
that represent a loan between two parties. The lender, or the person issuing the
note, promises to pay a certain amount of money to the borrower at a specific date
in the future. The borrower, in turn, promises to pay the lender a discounted amount
of money, which is known as the face value of the note, at the time of maturity.
The formula for calculating the face value of a simple discount note is: Face Value = Maturity
Value / (1 + Interest Rate x Time Period)
- Where Maturity Value is the amount to be paid at the time of maturity, Interest Rate
is the interest rate for the note and Period is the number of years for which the note
is issued.
- For example, if a borrower wants to borrow $1000 in 2 years at a simple interest rate
of 5% per year, the face value of the note would be $952.38 ($1000 / (1 + 0.05 x 2))
It is important to note that the interest earned on a simple discount note is the difference
between the face value and the maturity value and is calculated using the simple interest
formula. In summary, Simple discount notes, also known as promissory notes, are financial
instruments that represent a loan between two parties. The lender promises to pay a certain
amount of money to the borrower at a specific date in the future, and the borrower
promises to pay the lender a discounted amount of money, which is known as the face value
of the note, at the time of maturity. The face value of the note is calculated by dividing the
maturity value by (1 + Interest Rate x Time Period).
Compound interest
is the interest on a loan or deposit calculated based on both the initial principal and the
accumulated interest from previous periods. The interest earned in each period is added to
the principal and the interest is calculated on the new, larger principal.
The formula for calculating the compound interest is:
A = P(1 + r/n)^(nt)
Where:
● A is the future value of the investment (principal + interest)
● P is the principal or initial investment
● r is the annual interest rate
● n is the number of times the interest is compounded per year
● t is the number of years for the investment
- For example, if you invest $1000 at an annual interest rate of 5% compounded
annually for 2 years, the future value of the investment would be $1102.50
A = $1000 x (1 + 0.05)^2 = $1102.50
- Another example if you deposit $1000 in a savings account that pays an annual
interest rate of 5% compounded semi-annually (twice per year) for 2 years, the
future value of your deposit would be $1105.06
A = $1000 x (1 + (0.05/2))^(2*2) = $1105.06
It is important to note that the compound interest formula assumes that the interest is
compounded continuously, which is not always the case in real-world scenarios. However,
the formula can be adjusted for other compounding frequencies. In summary, Compound
Interest is the interest on a loan or deposit calculated based on both the initial principal and
the accumulated interest from previous periods. The interest earned in each period is added
to the principal and the interest is calculated on the new, larger principal. The formula for
calculating the compound interest is A = P(1 + r/n)^(nt) where A is the future value of the
investment, P is the principal or initial investment, r is the annual interest rate, n is the
number of times the interest is compounded per year, t is the number of years for the
investment.