Financial Mathematics

Financial Mathematics Revision Points

Fundamental Concepts

  • Understand the concept of interest, both simple and compound.
  • Identify the differences between simple interest (calculated on the initial investment only) and compound interest (calculated on the initial investment and accumulated interest).
  • Be familiar with the concepts of principal, rate and time in the finance context. The principal refers to initial amount, rate is the interest per annum expressed as a percent, and time is the period for the interest calculation.

Simple Interest

  • Compute simple interest using the formula: I = prt, where I is the interest, p is the principal, r is the rate, and t is time.
  • Understand how to rearrange the simple interest formula to make different factors the subject.

Compound Interest & Exponentials

  • Define and calculate annual, semi-annual, quarterly, monthly, and daily compound interest using the formula: A = P(1 + r/n)^(nt) where A is the amount, P is principal, r is the annual interest rate, n is the number of times interest applied per time period and t is time in years.
  • Recognise that compound interest is an example of exponential growth.


  • Understand the concept of depreciation, which is the decrease in value of assets over time.
  • Calculate depreciation using the formula: V = P(1 - r/100)^n, where V is the final value, P is the principal (initial value), r is the depreciation rate and n is the number of time periods.
  • Recognise that depreciation is an example of exponential decay.

Loan Repayments

  • Understand what a loan, loan term, loan amount, interest rate, and monthly repayments are.
  • Calculate loan repayments using formulas and also with the help of amortisation tables.


  • Understand the concept of an annuity, a series of equal payments or receipts that occur at even intervals.
  • Be able to calculate the future value of an annuity using the formula: FV = P × ((1 + r)^n - 1) / r, where FV is the future value, P is the annuity payment, r is the interest rate per period, and n is the number of payments.

Practical Applications of Financial Mathematics

  • Understand how these concepts apply in real-world scenarios like investments, loans, mortgages, savings, and other financial decisions.
  • Develop problem-solving techniques for financial decision-making scenarios, such as calculating the cost of a loan or the final value of an investment or savings account.