Mathematics in the Financial Industry
The bank manager's office seems pretty fancy. You sit down on a vaguely comfortable-looking sofa, and the bank manager sits across from you in an office chair.
"I suppose I should get the formalities out of the way first. Hello there, pleased to meet you, we're a bank, we offer savings accounts, and those savings accounts pay compound interest that accrues on a monthly basis. In other words, every month, we deposit a little extra money into your account, in an amount equal to about point one percent of your current balance.
"Now, say you want to figure out how much your account will be worth after some number of years. You'll want to use this equation..." He pulls out a notepad and scribbles something down on it:
final value = (initial deposit) * (1 + interest rate per period)(# periods)
"Most banks around here quote interest as "annual percentage rate", or APR, so assuming interest compounds monthly, you can just divide that by twelve to get the per-period rate. Oh, uh, and sorry if I'm being a little brief. We get a lot of kids like you this time of year."