cn
cn
Lol and they say math is the universal language.
Cute stupid chicks are my absolute favorite panty droppers!
We had to spend a significant amount of time doing proofs, so that we did understand why we were allowed to use certain equations and relationships. If fact every time a new formula or rule was introduced to us the first thing we did was break it down into the fundamental components and prove it was equivalent.
At least you're honest......
One-sentence summary: compound interest is exponential. cnThe MOST important thing you should learn about math is calculating Daily Compound Interest (like on all your credit cards and house mortgage).
People usually understand that higher interest rates are bad and that it costs money to borrow money. What people do not fully comprehend is just how insidious the way banks calculate your interest rate is. Because banks/lenders know that people are bad at math (like Massah says, Failed public school education) they take advantage of that. For more info, read: http://en.wikipedia.org/wiki/Credit_card_interest
Here is what you need to know. If your interest rate is 20% on a card and you charge it up to $10,000, it is easy to assume that that will equate to $2,000 of interest in one year. Now let's look at what these evil bank fuckers actually rip you for:
They get to use what is called Compounding Daily Simple Interest. Simply put, they take your balance for that day (Day 1 is $10,000) then they take the rate divided by 365 (0.20/365 = 0.00055) which is 0.055%. For simplicity, it is easier to just stay with the decimal rate and not % to keep the numbers in dollars, so here goes:
Here is the example without Compounding Daily Simple Interest
$10,000 X 0.00055 = $5.5 per day of interest X 365 days per year = $2007.50 which is the figure you would get if you take the listed APR (annual being yearly) times the balance. Here is a good calculator to use: http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator
Now here is what the bank fuckers actually do:
$10,000 X 0.00055 = $5.50 added back to the balance for $10,005.50.
Then on Day 2 they take $10,005.50 X 0.00055 = $10,011.00
Then the cycle keeps on repeating, here is the new balance in just one month (30 days) = $10,160
So if you are trying to pay this off, if you pay $160 a month on the balance, which is a lot of money to most people, you would never pay the balance off, not in your entire lifetime . . . think about that . . .
Now refer back to what an actual APR of 20% should be = $2,000 of interest in a year. What is it actually you ask? The answer is $2,214.60
Ever wondered what the difference between APR and APY is? Well if you run these calculations on your bills and your investments, you will see the importance. The actual APY for this CC is $2,214.60/$10,000 = 22.15% and not the 20% that they claim they are charging you.
When you have money at a bank earning let's say 5% APY on the balance, they fuck you over there too. You do not get the benefit of the compounding daily interest. The same bank will be charging you an APY of 22.15% (saying your APR is only 20%) and you can have an investment at that bank where they pay APY of 5%, but it is actually an APR of 4.88%, which yields (APY) 5%. So basically, you are getting fucked coming and going
Which is why you should smoke a joint so you don't get too upset about it.
This is why math (especially Money Math) is important. Next lesson, I'll explain why it's important to understand the difference between what you think things cost, and what they actually cost. Best to smoke a joint so you don't get too upset about getting fucked coming and going.