Dr. Sarah's Finance Problem Review Sheet

Recall that on average, you are expected to spend 1.5-2 hours outside of class for EVERY hour in a math class, since you must practice in order to be able to do the problems quickly and gain common sense skills. If you have been doing this (and continue to), then you will be prepared for this test. Notice in the financial math segment, we have learned formulas and applied them to real life.

You should view exams in this course primarily as a learning experience, as reflected in the relatively low percentage of the grade (see syllabus). This means that exams are not only an opportunity for you to demonstrate your mastery of the material, but are also an opportunity for you to be challenged with new material in order for you to make new connections. To encourage exams as a learning experience some extra points will be granted for test revisions. My exams are considered challenging. I require that you really understand the material and can use this understanding to quickly answer questions and give explanations. Research has shown that the effort you expend in clearly explaining your work solidifies your learning. In addition, you will find that studying for the comprehensive final will be much easier since you will have your explanations in front of you. If you generally are not a good test taker, then do not worry, since you can still do fine in this course by doing well in the other aspects of this class.

The exam will test your skill at doing problems, your understanding of problems that you've done, and your skill at communicating mathematics in writing. One 8.5*11 sheet with writing on both sides allowed. You can put anything you like on your sheet. Calculator is mandatory.

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", or "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."

Problem 1

• If I put in \$350.00 in an account compounding monthly at 6.5%, how much do I have at the end of 5 years?
• How much should I have put in if I'd wanted to end up with \$5000 at the end of 5 years, assuming that I compound monthly at 6.5%?
• If I put in \$350 in an account compounding monthly at 6.5%, how long will it take for the money to reach \$100,000?

Problem 2

• If I put in \$350 each month into an account compounding monthly at 6.5%, how much do I have at the end of 5 years? How much did I put in total? How much interest did I earn?
• How much should I have put in each month if I'd wanted to end up with \$5000 at the end of 5 years, assuming that I compound monthly at 6.5%? How much did I put in total? How much interest did I earn?
• If I put in \$350 each month in an account compounding monthly at 6.5%, how long will it take for the money to reach \$100,000? Setup and understand common sense, but do not solve. Given the answer, how would I calculate how much I put in total and how much I earned?

Problem 3

• I'm going to buy a 30,000 car and finance it at 6.5%, compounded monthly. I'll put 10% down and take out the remainder as a loan.
-How much do I need to take out as a loan?
-How much do I need to pay each month if my loan is for 5 years? How much did I put in total over the life of the loan? How much total interest do I pay over the life of the loan?
-How long is my loan period if my monthly payment is actually \$100 a month? Setup and understand common sense, but do not solve!

Problem 4

Be sure that you could explain information given on a student loan statement or an Excel amortization table (see class notes, condo lab, and web based problems 9 and 10 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.