MAT UNIT 3 FINITE MATH 4

MATUNIT 3 Finite Math

Amortizationcan be described as the paying off of debt through a fixed repaymentschedule, where regular installments are made over a given period oftime. Amortization may also be seen as the distribution of capitalexpenses for the intangible assets over a given period of time thatis usually over the useful life of an asset for the purposes ofaccounting and tax (Weil et al, 2014). Amortization can be seen to besimilar to depreciation or depletion, only that the case ofdepreciation is for tangible assets while depletion is for naturalresources.

Knowledgeof amortization is exceedingly important and can be applied intopersonal life as well as one’s profession. The knowledge ofamortization can be transferred into personal life in various ways.One of the ways that the knowledge of amortization can be transferredinto personal life entails an individual calculating the amortizationof a car loan or a mortgage. When a person considers taking a carloan or a mortgage, he/she can use the knowledge of amortization indetermining the payments that should be paid at the start or end ofevery month during the repayment period. This is an importantapplication since an individual can avoid being deceived byfraudulent credit institutions. Besides, the knowledge ofamortization can be transferred in personal life, where an individualcan utilize the knowledge for calculating the amortization expensefor a particular intangible asset such as a patent, for the purposeof tax payment. Since during tax submissions deductions are allowedfor amortized expenses, it would be beneficial for an individual tohave the knowledge of amortization in order to determine the taxdeduction that he/she would have, when submitting tax (Weil et al,2014). For example, a person may calculate amortization expense as aresult of goodwill, which he can deduct when submitting tax.

Inthe calculation of interest rates, one may use simple interest rateor one may opt to use compound interest. Simple interest rate doesnot consider the interest earned in previous periods, but justconsiders interest for the period being considered for example,simple interest may be considered for a period of 5 years. However,when it comes to compound interest, interest for a given period isdetermined by adding the interests for the previous periods plusprincipal amount in order to determine the interest for the periodunder consideration. For example, in case one is determining theinterest for the month of June and May is a period underconsideration, then the interest for May has to be added to theprincipal amount in order to establish the interest for June. Theknowledge of compound interest is exceedingly crucial in theretirement planning. When determining a retirement plan, compoundinterest is critical since it is the one that is used in establishingthe interest earned by the principal amount. Knowledge of compoundinterest is critical since it helps an individual to choose aretirement plan that would earn him/her the highest returns,depending with the time period that an individual considers to savein retirement. Individuals that have the knowledge of compoundinterest understand better the interests that would be earned bychoosing a given retirement plan. Thus, the knowledge of compoundinterest helps individuals in retirement planning by aiding them tochoose a plan that would yield high returns.

References

Lial,M. L., Greenwell, R. N., & Ritchey, N. P. (2012). *Finitemathematics (10th ed.)*.Boston, MA: Pearson Education.

Weil,R. L., Schipper, K., & Francis, J. (2014). *Financialaccounting: An introduction to concepts, methods, and uses*.Mason, OH: South-Western, Cengage Learning.