RIC-1069 Maths terms and tables
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<strong>Maths</strong> in finance<br />
Simple interest<br />
Simple interest (SI) is the amount of money paid on an invested amount<br />
called the principal (P), calculated at an annual percentage rate (R), <strong>and</strong><br />
paid at the end of a period of time (T) expressed in years.<br />
e.g.<br />
To find the simple interest on *800 invested at seven percent<br />
for two years:<br />
SI = P x R x T<br />
= *800 x 7% x 2<br />
= *112<br />
Compound interest<br />
Compound interest (CI) is when the interest earned on an investment is<br />
added to the principal each year, thus increasing the return year by year.<br />
e.g.<br />
To find the compound interest on *800 invested at seven<br />
percent for two years:<br />
CI = P x (1 + R) T – P<br />
= *800 x (1 + 0.07) 2 – *800<br />
= *800 x (1.07) 2 – *800<br />
= *915.92 – *800<br />
= *115.92<br />
Commission<br />
A commission (C) is a payment made for a service <strong>and</strong> calculated as a<br />
percentage of the total amount of the transaction.<br />
e.g.<br />
If a car salesperson is paid 2% commission on selling a car for<br />
*12 000, this is calculated as follows:<br />
C = 2% of *12 000<br />
= 2% x *12 000<br />
= *240<br />
Discount<br />
A discount is the amount taken off the price of an item <strong>and</strong> is expressed<br />
either as an amount of money or as a percentage off the marked price.<br />
e.g.<br />
If the marked price of an item is *48 <strong>and</strong> the discount is 10%,<br />
the amount of money taken off is calculated as follows:<br />
Discount = 10% of *48<br />
= 10% x *48<br />
= *4.80<br />
Final selling price = *48 – *4.80 = *43.20<br />
74 <strong>Maths</strong> <strong>terms</strong> <strong>and</strong> <strong>tables</strong> R.I.C. Publications ® www.ricpublications.com.au
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