3.1 Introduction

When you first learned logarithmic and exponential functions in your Algebra II class in high school, you may have wondered if there was any practical value to understanding them. The good news is that there is! Both types of functions are important in the study of finance and economics.

In finance, exponential functions are used to model processes that involve continuous growth, such as revenues, investment, and earnings. These models help financial managers create forecasts and make educated financial decisions.

Logarithmic functions are the inverse of exponential functions, and they are also very useful in finance. For example, when looking at stock prices, it can be more meaningful to consider the percentage change in the stock price rather than simply the change in the price level. Logarithmic functions allow for easy calculation and comparison of growth rates and percentage changes.

Our study of logarithmic and exponential functions in this topic will not only help you advance in this math-prep course but also prepare you for finance and economics classes.