Test 2 Study Guide: Finance
The purpose of this test experience is to help you understand the material
and make connections.
Research has shown that the effort you expend in studying for tests and
clearly explaining your work solidifies your learning.
At the Exam
One 8.5*11 sheet with writing on both sides allowed.
You can put anything you like on your sheet.
One scientific calculator or graphing calculator mandatory (but no cell phone nor other
calculators bundled in combination with additional technologies)
You may have out food, hydration, ear plugs, or similar if they will
On the test,
your grade will be based on the quality and depth of your
responses in the timed environment (the test must be turned in when time is
Questions will mainly consist of
computations and short answer or essay types. There is NO need to write in full sentences -
bullet points, etc will be fine.
The test will be a mixture of computational
questions as well as critical reasoning and reflection involving
the "big picture."
You will be expected to answer questions about
activities from class or lab and the homework readings.
For instance, review the following:
You will be given targeted finance questions with various parts,
like on homework and in class, and this will form the majority of the test:
ASULearn Jane and Joan,
the Benjamin Franklin lab
the ASULearn Car loan practice
the Condo and Car Purchases: Decisions, Decisions (Part 1)
Car Purchases: Decisions, Decisions (Part 2)
How Do You Know Exercise Set
1.2 #9, 14, 21, and 24 and Exercise Set 1.3 # 8, 10
Clicker questions from classes (but not in multiple choice format)
and the recent ASULearn Material Review Questions for Test 2 (but not in multiple choice format)
For instance, in part a) you might be asked for a monthly loan payment,
in part b) the total paid, in part c) the first month's interest...
So review the lump sum, periodic payment and loan payment scenarios as well as
the total paid/put in, the total interest,
the first months interest, "simple" interest...
You can expect to have
scenarios that are similar to what we have seen.
Be sure that you could explain information given on a student loan
statement or an Excel amortization table (see
class notes, condo lab chart and
Paying extra each month on option 2, ASULearn car loan practice
problem, and the student loan work
as a review of this), and that you could relate that information
to by-hand formulas that we have used and answer questions on it.
You will NOT be tested on Excel formulas such as =B3*$c$2, but
you might be asked how to write down how you would get a number in an
excel box using by-hand formulas, or you might be asked to use a portion
of an Excel table (and your knowledge of how it works)
in order to answer questions like how much interest you save when you pay
extra money each month (the condo lab
is a good review of this):
For table 2, when paying extra, the 2nd row is
325 538.51 0.79
which is also the first row of the amortization table with a negative
balance. To calculate the total interest in this case,
325*538.51 - 385.27 - 84212,
ie the number of months times the monthly payment minus the overpayment
that last month minus the original loan amount.
Make sure that you understand the
what we have gone over in class
and the "calc keys" that will work with the calculator you will
have that day (no cell phone allowed nor anything
bundled in combination with additional technologies).
For the test, you might need to
write down the setup of the formula with numbers,
explain why (in words) the formula you chose applied to this problem,
solve the problem on your calculator, and
write down "math common sense" - did your answer make sense or not and WHY?:
For example, "we have seen that it is possible to double your money
in about 20 years because it is sitting there a long time",
"it makes sense that the interest on the loan is more than the loan itself
since the bank is loaning us a large lump sum up front, and we are
taking a long time - 30 years - to pay it back. The bank could
have deposited their money in a lump sum account instead of loaning
it to us, and the money would have more than doubled in this account.
Hence, we must pay back more than double the interest."
Other Directed Questions and Short Essay Questions
You should review the philosophy of
how we derived
lump sum philosophy,
periodic payment philosophy
loan payment philosophy - a good review is the ASULearn Review Questions.
You should be able to answer questions like where the 1 comes from in the
lump sum formula, where the -1 comes from in periodic payment, where
the negative power comes from in the loan formula by philosophically expaining what these
stand for/represent in the context of how we obtained the formulas.
You will also be asked to look at examples from the
finance segment and discuss the similarities with the following themes:
Impossibility of checking all the cases, but finding a solution by shifting our viewpoint (Jeff Weeks' research)
A similar example from the finance segment
occurred in the derivation of the periodic payment formula -
we looked at the future value of each payment. Even
though we found a pattern,
it was impossible to use for long time periods since there were as many
terms as compounding periods. So next we stepped back,
shifted our view of it by transforming it by a common piece and then we
combined the shifted equation with the original. The overlap cancelled to
give us a general formula that was easy to use and only had a
couple of terms.
Specifically, breaking it up into manageable parts and
combining the shifted equation with the original was
Jeff Weeks' research research on higher dimensional spaces, since
each involved looking at a change in view and organization
that eventually simplified an impossible problem and made it possible to solve.
Impossibility of constructing a solution but finding a
non-constructivist approach. (Jeff Weeks' research)
Thrifty Saver's account from The Simpsons
Lisa: I got their new Thrifty Savers savings account, with 2.3% annual interest instead of the normal 2.25%, so a year from now, *I'll* have an extra nickel.
.05= 100 (1+ .023/n)n - 100(1+.0225/n)n
It was impossible to
construct a solution since the unknown compounding period appeared both
in the power and what was being raised to the power. So algebraic techniques
cannot construct a solution [even logs aren't powerful enough for this
problem]. Goal Seek in Excel also was not powerful enough to solve this
for us, and gave us an answer that did not make sense,
so we used the Equation Solver in Excel along with common sense and a
"guess and check" perspective - this is
not a constructivist proof, as it does not show us how or why it works.
Instead the computer (or we)
guesses and checks until it finds an answer [and then
we use common sense to evaluate whether that answer suffices].
How the number of stars in the universe can connect to
finance. Recall the Richard Feynman quotation:
There are 1011 stars in the galaxy. That used to be a huge
number. But it's only a hundred billion. It's less than the national
deficit! We used to call them astronomical numbers. Now we should call them
Also think about
local to global connections
what is mathematics theme
diverse ways that people succeed in and impact finance theme
truth and consequences (When are we
convinced? What are the consequences of certain truths? What is the role of
chance and probability?) theme
For instance, a question could be phrased like:
Name an instance where we discussed the theme of truth and consequence and
the role of chance and probability,
or a more directed
question like, discuss how that theme arose during our investigation
of our discussion of the lottery. Similar
types of open ended and/or directed questions would ask about the other
Here is a partial sample test
so that you can see examples of question formatting. The actual test will
be about 5 pages long.
The main web page and class highlights page
links to homework readings and class activities and clickers, which also serve as a good
Also see the glossary/wiki on
and the ASULearn
Review Questions for Test 2.
I want you to succeed and I am happy to help you understand
by answering questions in class or online, or going over material with you in
office hours. Here are a few words of encouragement that are adapted from
Heart of Mathematics:
To really learn something new, you must experience it yourself via
hands-on hard work and practice. We don't learn deeply by watching someone
else. You could watch many movies about baseball, but in order to really
learn how to play well, you must actually pick up a bat yourself.
The only stupid question is the unasked question.
Make mistakes and fail but never give up. Instead, learn from
your mistakes and use them to grow.
Life is a journey - not a destination. Someone could give you all THEIR
answers, but it is your experiences and what you've learned during the
process that really matters.