The Force of Interest (UMAP)

The purpose of this module is to give students an: 1) appreciation for a natural connection between exponential functions and compound interest; 2) application of the derivative in a non-science situation; and 3) understanding of the terms used in finance such as simple interest, compound interest, yield rate, nominal rate, and force of interest.

Table of Contents:

1. HOW MONEY GROWS
1.1 Accumulation Functions
1.2 Simple Interest
1.3 Compound Interest

2. MEASURING INTEREST
2.1 Effective Rates of Interest
2.2 Nominal Rates of Interest
2.3 Notation

3. THE FORCE OF INTEREST
3.1 How to Use the Derivative
3.2 A Rate of Change per Unit Invested
3.3 Relation to Other Measurements of Interest
3.4 Continuous Compounding and Yield Rates

MODEL EXAM

ANSWERS TO EXERCISES

SOLUTIONS TO MODEL EXAM