Lecture 1 Introduction Math 1140 Financial Mathematics Ana Nora Evans 403 Kerchof

Math Financial Mathematics Why do you take financial math? 2

Math Financial Mathematics Easy A ? 3 Homework Class Participation Project Two Exams Final

Math Financial Mathematics Project Ideas Federal Reserve System Explain the causes of a financial crisis – Bank panic of 1907 – Savings and loans crisis – 2008 financial crisis Analyze different options for a short term loan Explain the terms used in a “Mad Money” show Analyze a publicly traded company Build a stock portfolio 4

Math Financial Mathematics Satisfy math requirement 5

Math Financial Mathematics Become a financial guru 6

Math Financial Mathematics Learn how to manage your finances 7 COMM Personal Finance

Math Financial Mathematics If you like this class, you may also like… MATH Mathematics of Derivative Securities 8 Beware of prerequisites

Math Financial Mathematics Learn about… How to calculate credit card interest How to calculate loan interest Annuities Stock investing Bonds More precisely, most of chapters 1-7 from the textbook. 9

Math Financial Mathematics Additional Topics me! 10

Math Financial Mathematics Do you own a credit card? A Yes B No 11

Math Financial Mathematics What is interest? Interest is the fee paid by the borrower to the owner. 12 Interest rate is the percentage of the amount borrowed charged to the borrower for a fixed amount of time.

Math Financial Mathematics APR What is APR? 13 Annual Percentage Rate How do you calculate the interest rate per day?

Math Financial Mathematics When do you think are you charged interest for a credit card? A)Every month, even if you pay the bill on time B)When you don’t pay the entire bill C)Only when you don’t pay the minimum payment D)None of the above 14

Math Financial Mathematics What is the amount you pay interest for? A)Only the amount from previous cycle B)The transaction from the previous and current cycle 15

Math Financial Mathematics Methods for Calculating Credit Card Interest Average daily balance Adjusted balance Previous balance Two-cycle average daily balance Daily accrual 16

Math Financial Mathematics Daily Accrual The interest is calculated daily, and billed at the end of each cycle. 17 I = sum of daily interest daily interest = daily balance * APR / 365

Math Financial Mathematics Example Previous Balance: $2,500 Expenses and credits: Day 1: $200 Day 10: $1,000 Day 20: -$1,000 Day 25: $500 APR: 13.24% Cycle length: 30 days 18

Math Financial Mathematics Daily Accrual In our example: Days 1-9: daily interest= $2,700 * / 365 = $0.97 Days 10-19: daily interest= $3,700 * / 365 = $1.34 Days 20-24: daily interest= $2,700 * / 365 = $0.97 Days 25-30: daily interest= $3,200 * / 365 = $1.16 I = 9 * $ * $ * $ * $1.16 = $

Math Financial Mathematics Average Daily Balance First we calculate the average daily balance. add up the balance for each day and divide by the number of days Calculate the interest per day multiply the average daily balance with the daily interest rate Calculate the interest multiply the daily interest by the number of days 20

Math Financial Mathematics Average Daily Balance I = ADB x APR x days in the billing cycle / 365 where I is the interest ADB is the sum of the balance of each day in the cycle divided by the number of days in the cycle. APR interest rate per year 21

Math Financial Mathematics Average Daily Balance As a mathematical formula: where n is the number of days in the cycle B i is the balance on the i th day of the cycle * ADB is my notation 22

Math Financial Mathematics Example I = ADB x APR x days in the billing cycle / 365 In our case: ADB = $3, APR = 13.24% days in the billing cycle = 30 I = $3, * * 30 / 365 = $

Math Financial Mathematics Adjusted Balance I = (previous balance – payments) x APR x days in the billing cycle / 365 In our example: previous balance = $2,500 payments = $1,000 I = ($2,500 - $1,000) * * 30 / 365 = $

Math Financial Mathematics Previous Balance I = previous balance x APR x days in the billing cycle / 365 In our example: previous balance = $2,500 I = $2,500 * * 30 / 365 = $

Math Financial Mathematics Two-cycle Average Daily Balance I = ADB x APR x days in the billing cycle / 365 where I is the interest ADB is the sum of the balance of each day in the current and previous cycle divided by the number of days in the two cycles. APR interest rate per year 26

Math Financial Mathematics Question What do you think about the two-cycle average daily balance method of calculating interest? 27

Math Financial Mathematics Office Hours In 403 Kerchof Hall Monday 1:00 – 2:30 Tuesday 3:30 – 5:00 By appointment me if you have conflicts with both times Feel free to stop by my office, but I might not be there… 28

Math Financial Mathematics Office Hours What to do before coming to office hours Read your class notes Try to solve the homework by yourself 29 I will ask for help. I will make a reasonable effort to do things on my own first, but will ask my classmates or the course staff for help before getting overly frustrated.

Math Financial Mathematics Office Hours Don’t Do not hang out in my office Do not do your homework in my office. Do not come in my office if you are stopping by unannounced and there is a ‘Do not disturb’ notice on my door. 30

Math Financial Mathematics Charge Due Friday: Read sections 1.2 and 1.3 and Syllabus First homework Signed course pledge Registration Survey Due Next Wednesday (31 August): Second homework 31