Financial Mathematics - Calculation of Interest & Annuities
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
One-liners from this chapter
Free sample — 8 of 67 rapid-fire Q&A cards.
Define simple interest in banking context.
Interest calculated as fixed percentage of original principal only, not reinvested.
What is compound interest?
Interest calculated on principal plus accumulated interest; reinvested each period.
Formula for compound interest with m compoundings per year?
A = P(1 + r/100m)^(mn); rate divided by periods, exponent multiplied by periods.
What is continuous compounding formula?
A = P·e^(rt) where e ≈ 2.71828; used in derivatives and Black-Scholes pricing.
State the Rule of 72.
Years to double = 72 ÷ annual interest rate; quick mental-math estimate.
When is Rule of 72 applicable?
Annual compounding only; used in deposit marketing and financial planning.
Define fixed interest rate in banking.
Rate remains constant throughout loan/deposit tenure regardless of market changes.
Define floating interest rate.
Rate varies periodically linked to external benchmark; EBLR regime mandatory since October 2019.
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