MATHEMATICAL CONCEPT GUIDE

The following guide, if needed, serves as a refresher of some of the arithmetic and basic algebra necessary to solve some of the financial calculations required throughout this course. Rule for Order of Operations 1. 2. 3. 4. 5. 6. Parentheses (perform work inside parentheses first) Exponents (simplify exponents) Multiplication (left to right) Division (left to right) Addition (left to right) Subtraction (left to right) 3 + 4 x (1 + 0.05)2 = 3 + 4 x (1.05)2 = 3 + 4 x 1.1025 = 3 + 4.41 = 7.41 Some students may recall memorising the order of operations as PEMDAS. Exponents Exponents are used to help condense the steps involved in multiplication, which is especially helpful when compounding. For example, when multiplying 1.05 times itself 5 times, we could perform the following calculation: 1.05 x 1.05 x 1.05 x 1.05 x 1.05 = 1.28 (rounded) We could also simplify the problem by writing (1.05)5 to get the same answer. Also, in Excel you can enter this into any cell as follows: =1.05^5 Percentages Percentages in decimal form appear differently than when written with a percent sign. For example, 5% is written as 0.05 in decimal form. However, please note that the percent sign is not included when the percentage appears in decimal form. Including the percent sign would make 0.05% really equate to 0.0005 and can lead to errors in calculations. Also, please note that for all financial calculations, you must have at least 4 decimal places to eliminate rounding errors. Basic Statistic Definitions MeanThe sum of a set of values divided by the number of values MedianThe middle value of a set of values arranged in order of magnitude ModeThe value that occurs most frequently Delta ()Denotes change (% of in Demand / % of in Price to calculate Price elasticity of Demand)

Graphing Graphs are often used to better demonstrate measurements and relationships. A variety of graphs may be used, and each serves a different function: Cartesian Coordinate SystemUses the horizontal axis (x) and vertical axis (y) to plot points on a two-dimensional graph. In the example below, the point at which the axes intersect is zero (0) and the positive and negative areas of each quadrant are identified. y x= y=+ x=+ y=+ x x= y= x=+ y=

Relationships Direct Relationship: y = kx, where k is a constant. If x increases, then y increases. If x decreases, then y decreases as well. In economics, the law of supply represents a direct relationshipas price increases, the quantity supplied increases. An example of a Supply Curve is shown in red in the form of a positively sloped line. Price

Quantity Indirect or Inverse Relationship: y = k/x, where k is a constant. If x increases, then y decreases. If x decreases, then y increases. In economics, the law of demand represents an indirect relationshipas price increases, the quantity demanded decreases. An example of a Demand Curve is shown in red in a negatively sloped line. Price

Quantity