Section 11.8: Review for Chapter 11

Studying for a chapter examination is a personal process, one which nobody else can do for you. Simply take the time to review what you have done.

Here are the new terms in Chapter 11.

Add-on interest [11.2]
Adjusted balance method [11.2]
Alternating series [11.4]
Amortization [11.6]
Amortization formula [11.6]
Annual compounding [11.1]
Annual percentage rate [11.2]
Annuity [11.5]
APR [11.2]
Arithmetic sequence [11.3]
Arithmetic series [11.4]
Average daily balance method [11.2]
Closed-ended loan [11.2]
Common difference [11.3]
Common ratio [11.3]
Compound continuously [11.1]
Compound interest [11.1]
Compound interest formula [11.1]
Continuous compounding [11.1]
Credit card [11.2]
Daily compounding [11.1]
Dealer’s cost [11.2]
e [11.1]
Euler’s number [11.1]
Evaluate a summation [11.4]
Exact interest [11.1]
Expand a summation [11.4]
Fibonacci sequence [11.3]
Fibonacci-type sequence [11.3]
Finance charge [11.2]
Finite series [11.4]
Future value [11.1]
Future value problem [11.7]
Future value formula [11.1]
Geometric sequence [11.3]
Geometric series [11.4]
Grace period [11.2]
Infinite series [11.4]
Inflation [11.1]
Installment loan [11.2]
Interest [11.1]
Interest rate [11.1]
Line of credit [11.2]
Lump-sum problem [11.5]
Monthly compounding [11.1]
Monthly payment [11.5]
Natural base [11.1]
Open-ended loan [11.2]
Ordinary interest [11.1]
Partial sums [11.4]
Periodic payment problem [11.5]
Present value [11.1]
Present value formula [11.1]
Present value of an annuity [11.6]
Present value problem [11.7]
Previous balance method [11.2]
Principal [11.1]
Quarterly compounding [11.1]
Revolving credit [11.2]
Semiannual compounding [11.1]
Sequence [11.3]
Series [11.4]
Sigma notation [11.4]
Simple interest formula [11.1]
Sinking fund [11.5]
Sticker price [11.2]
Summation notation [11.4]
Term of a sequence [11.3]
Time [11.1]
Two-percent offer [11.2]

If you can describe the term, read on to the next one; if you cannot, then look it up in the text (the section number is shown in brackets).


Can you explain each of these important ideas in your own words?

Simple interest formula and the future value formula for compound interest [11.1]
Ordinary and exact interest [11.1]
Interest formula variables [11.2]
Credit card interest [11.2]
Arithmetic, geometric, and Fibonacci sequences [11.3]
Distinguish between sequences and series [11.3, 11.4]
Retirement decisions [11.5]
Add-on interest vs. amortization [11.2; 11.6]
Distinguish financial problems [11.7]

Next, make sure you understand the types of problems in Chapter 11.


Be able to estimate reasonable answers to financial problems. [11.1-11.7]
Find the amount of interest if you are given the purchase price, length of loan,
and the monthly payment. [11.1]
Find the total amount to be repaid for a simple interest loan. [11.1]
Calculate the future value. [11.1]
Calculate the present value. [11.1]
Compare the amount of interest and future value for simple and compound interest. [11.1]
Be able to calculate the future value due to inflation. [11.1]
Be able to calculate the present value due to inflation. [11.1]
Calculate the time necessary to achieve an investment goal. [11.1]
How much must be deposited into a bank account to provide a given monthly income. [11.1]
Be able to calculate the monthly payment using add-on interest. [11.2]
Make an appropriate offer on a new car. [11.2]
Calculate the APR for installment loans or for credit cards. [11.2]
Be able to calculate the amount of credit card interest by using the previous balance method, the adjusted balance method, and the average daily balance method; which is better from the consumer point of view? [.]
Find the amount of interest, the monthly payment, and the APR for consumer transactions. [11.2]
Determine the monthly payment for an automobile using add-on interest. [11.2]
Find the APR if you are given the price, length of time, and the add-on interest rate. [11.2]
Calculate the APR given the amount financed, the monthly payment, the length of time financed. [11.2]
Classify a given sequence as arithmetic, geometric, or Fibonacci; be able to find the next term. [11.3]
Write out the terms of a sequence when given the general term; find a specific term. [11.3]
Evaluate (expand) summation expressions. [11.4]
Find sums by classifying and using the series formulas. [11.4]
Distinguish between sequences and series in application problems. [11.4]
Calculate the amount you can save by making a periodic payment into an
interest-bearing account (annuity). [11.4]
Calculate the amount you need to deposit into an interest-bearing account to have a
given amount at some time in the future (sinking fund). [11.4]
Find the present value of an annuity. [11.6]
Calculate the amount of money you can borrow, given a monthly payment, interest rate, and
length of time (present value of an annuity). [11.6]
Find the monthly payment for an amortized loan. [11.6]
Calculate the down payment for a home, given the price; given the amount of the down payment,
calculate the price. [11.6]
Given a monthly payment, interest rate, and length of time, find the amount of loan. [11.6]
Work applied financial problems. [11.1-11.7]

Once again, see if you can verbalize (to yourself) how to do each of the listed types
of problems. Work all of Chapter 11 Review Questions (whether they are assigned
or not).

Work through all of the problems before looking at the answers, and then correct each of the problems. The entire solution is shown in the answer section at the back of the text. If you worked the problem correctly, move on to the next problem, but if you did not work it correctly (or you did not know what to do), look back in the chapter to study the procedure, or ask your instructor. Finally, go back over the homework problems you have been assigned. If you worked a problem correctly, move on the next problem, but if you missed it on your homework, then you should look back in the text or talk to your instructor about how to work the problem. If you follow these steps, you should be successful with your review of this chapter.

We give all of the answers to the Chapter Review questions (not just the odd-numbered questions), so be sure to check your work with the answers as you prepare for an examination.