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JOHN LEY
ADDITIONAL RESOURCE CONTRIBUTORS
MICHAEL FULLER
DANIEL MANSFIELD
BARBARA MARINAKIS ANDREW HOLLAND
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5C
6A
6B
6C
JOHN LEY
is a passionate and innovative mathematics educator. He has completed his PhD on mathematics education while lecturing and tutoring at the University of Western Sydney. John has held an array of teaching positions including Head of Mathematics, Assistant Principal, and Acting Principal. An experienced senior marker for the HSC, John was a member of the 2012–2014 assessment committees, setting the HSC calculus course examinations. John is the lead author of the Oxford Insight Mathematics series for NSW.
MICHAEL FULLER
was involved in Mathematics in NSW for many years, and was a key author on the Oxford Insight Mathematics series. He held the position of Head of Mathematics at Killara High School in Sydney for 24 years.
DR DANIEL MANSFIELD
is an award-winning Lecturer in the School of Mathematics and Statistics at the University of New South Wales (UNSW). In 2017, his research into ancient Babylonian trigonometry made headlines around the world. Locally, Daniel is known for supporting secondary school mathematics teachers and their students. His passion for mathematics is further endorsed by his students at UNSW, who voted him the ‘Most Inspiring Lecturer in First Year’.
ANDREW HOLLAND
has 18 years’ experience teaching Mathematics to Secondary School students of varied levels of ability. He previously taught at St Andrew’s Cathedral School and Shore School. He is now Head of Mathematics at St Joseph’s College, Hunters Hill. Andrew previously authored a book on past HSC examination questions for General Mathematics.
BARBARA MARINAKIS
has taught Mathematics to Secondary School and Tertiary Education students for 17 years and has widespread experience with students of all levels of ability. She has held teaching positions at Sydney Girls High School, Cranbrook School and is now teaching at Ascham School. Barbara has lectured the Year 12 HSC preparation lectures for The School for Excellence and has lectured and tutored at Australian Catholic University. She holds a Masters of Education from the University of NSW.
Using Oxford Insight Mathematics Standard 2 Year 12
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helpful resources are outlined at the beginning of each unit
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worked examples and visuals located next to the relevant exercise
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Top tips for study success
Tip 1 – read key documents
The first step to success is to gather all key documents and read them carefully.
>Your most important tool is the syllabus. It sets out all of the information about the course, including what you are expected to learn and how you will be assessed. You can download a copy from the NESA website.
>Keep all documents from your teacher relating to assessment tasks and copies of any assessment advice (e.g. marking criteria or assessment rubrics). Understanding exactly what is required in an assessment task is crucial.
Tip 2 – study regularly
If you’re going to perform at your best, you need to allocate time for regular periods of study and revision. Studying regularly will help you to continually reinforce new concepts and avoid the stress of lastminute cramming. During your study you might:
>summarise theory and key examples in your own words
>focus on topics you find difficult and work through the relevant examples and questions
>test your understanding with revision questions, practice papers and past exams.
Tip 3 – manage your study time
When studying, it helps to put some practical strategies in place to stay on track. Try the following time management strategies.
> Create a study timetable to set up periods of regular study and revision around your school and personal schedule.
> Use a diary, wall planner or calendar to record the dates of upcoming assessment tasks, tests or exams and allow you to adequately prepare.
> Make lists of daily, weekly or monthly goals. It helps to keep the bigger picture in mind and breaks big tasks down into smaller, more manageable tasks, so that you gain a sense of achievement.
Tip 4 – take care of yourself
Looking after yourself during for HSC is important:
>eat a balanced diet and stay hydrated – try to avoid too much caffeine and junk food
>get enough sleep and regular exercise
>make time for breaks from study – a walk to get some fresh air will help you reset before the next study session.
Tip 5 – know the structure of exams
It’s important for you to become familiar with the format of the exam and the types of questions that typically appear. In an exam you should also:
>show your working when answering a question – even if a question is incorrect or left unfinished, you might still get some marks for your working
>keep an eye on the clock to make sure you have enough time to answer every question
>re-read questions so you know that you have provided a complete and accurate answer.
Tip 6 – understand key terms
Assessment tasks will likely include key terms. These range in level of difficulty. Some, such as solve or find, are simple to understand and master. Others, such as justify, are more challenging and will take practice to master. Below is a list of common key terms and an explanation of what they mean.
TERMDEFINITION
analyse
examine something complex by breaking it down into smaller parts and show how they relate to one another calculate work out an answer mathematically classify categorise into groups
convert change to a different form without changing the value
describe give a detailed account of the features
evaluate determine the value
explain make something clear by describing the relationships between different aspects and giving reasons
express represent an answer as a number, figure, formula or symbol
find determine the value or answer to a problem.
identify determine and state clearly justify present an argument providing evidence solve work out the solution to a question
1 Investments, depreciation and loans
The main mathematical ideas investigated are:
▶ making compound interest calculations using the formula
▶ making compound interest calculations using a compounded value table
▶ comparing different investment strategies
▶ c alculating the price of goods following inflation
▶ c alculating new salaries after increases in line with inflation
▶ c alculating the appreciated value of items
▶ the mathematics of shares
▶ c alculating the salvage value of an item using the decliningb alance method of depreciation
▶ c alculating declining-b alance loan repayments, including the use of tables
▶ c alculating payments, charges and balances on credit cards.
ARE YOU READY?
1 What is the result of 2000 × 0.05 × 3?
A 1200 B 30 000
C 2003.05 D 300
2 What is 9.5% expressed as a decimal?
A 0.95 B 0.095
C 9.5 D 950
3 Given that a = 3, b = 4 and c = 8, what is the value of abc?
A 348 B 15
C 96 D 3.48
4
Given that a = 2, b = 5 and c = 9, what is the value of a(b + c)?
A 214 B 54 C 28 D 16
5 What is 20% of 970?
A 19 400 B 194
C 1940 D 19.4
6 What is 7.5% of $11 300?
A $84 750 B $847.50
C $1506.67 D $1.51
7 How much interest is earned if $1000 is put into a simple interest account paying 5% p.a. for 1 year?
A $5000 B $50
C $500 D $1050
8 $2000 is put into a simple interest account paying 7% p.a. How much is in the account after 1 year?
A $2070 B $14 000
C $140 D $2140
9 The options below show relationships between x and y, where k and a are constants. Which options show a general equation for a linear relationship?
A y = kx B y = kx 2
C y = k x D y = ka x
10 The options below show relationships between x and y, where k and a are constants. Which option show a general equation for an exponential relationship?
A y = kx B y = kx 2
C y = k x D y = ka x
11 How many days are there in 3 years (excluding leap years)?
A 1095 B 36
C 1098 D 156
12 Given that x = 150 and y = 1.1, what is the value of xy2?
A 181.5 B 165
C 123.97 D 151.1
13 What is the value of $35 × 1.053?
A $36.75 B $36.86
C $110.25 D $40.52
14 A washing machine purchased for $1800 is depreciated by $220 per year. What is the salvage value of the washing machine after 5 years?
A $700 B $2900
C $1580 D $920
If you had difficulty with any of these questions or would like further practice, complete one or more of the matching Support sheets available on your obook assess.
Q1 Support sheet 1A.1 Multiplying and dividing decimal numbers
Q2 Support sheet 1A.2 Converting percentages, fractions and decimals
Q3–4 Support sheet 1A.3 Substituting for pronumerals
Q5–6 Support sheet 1A.4 Percentage of a quantity
Q7–8 Support sheet 1A.5 Understanding the simple interest formula
Q9–10 Support sheet 1A.6 Linear and non-linear relationships
Q11 Support sheet 1B.1 Converting units of time
Q12 Support sheet 1B.2 Evaluating algebraic expressions involving powers
Q13 Support sheet 1D.1 Finding cubes of numbers
Q14 Support sheet 1F.1 Straight-line depreciation
simple interest interest that is calculated on the original principal for the lifetime of the investment or loan; also known as flat rate interest
1A Comparing simple and compound interest investments
These resources are available on your obook assess:
• Spreadsheet 1A: Compare simple interest and compound interest investments
• Worksheet 1A: Practise your skills with extra problems for simple interest
• assess quiz 1A: Test your skills with an auto-correcting multiple-choice quiz
Simple interest is a type of interest based on a xed percentage of the original amount invested or borrowed, i.e. the principal. Simple interest can be calculated by using the following formula.
Simple interest formula
I = Prn where I = amount of interest in dollars
P = the principal, the amount invested (or borrowed)
r = interest rate per time period
n = number of time periods.
EXAMPLE 1A– 1 Calculating simple interest on investments
Calculate the simple interest earned on these investments.
a $5000 at 6.7% p.a. over 4 years
b $2300 at 1.56% per month for 19 months
c $3000 at 15% p.a. over 17 months
Solve
a P = $5000, r = 0.067, n = 4
I = Prn
= 5000 × 0.067 × 4
= $1340
b P = $2300, r = 0.0156, n = 19
I = Prn
= 2300 × 0.0156 × 19
= $681.72
c P = $3000
r = 15 ÷ 100 ÷ 12
= 0.0125
n = 17
I = Prn
= 3000 × 0.0125 × 17
= $637.50
Think/Apply
Convert the percentage interest rate to a decimal by dividing by 100.
If needed, convert the interest rate to a rate for the speci ed time period.
Substitute the values of P, r and n into the formula
I = Prn.
EXERCISE 1A Comparing simple and compound interest investments
1 Calculate the simple interest earned on these investments.
a $6000 at 5.8% p.a. over 3 years
b $3200 at 1.1% per month for 13 months
c $780 at 0.025% per day for 19 days
2 Calculate the simple interest on the following investments.
a $5600 at 13% p.a. for 16 months b $2900 at 15% p.a. for 23 days
c $7890 at 18.6% p.a. for 11 months d $3540 at 12.8% p.a. for 53 days
EXAMPLE 1A– 2 Calculating the monthly repayment for simple interest investments
Dominic borrows $2200 to buy a guitar. The simple interest rate is 9.75% p.a. and he takes the loan over 2 years.
a Find the interest on the loan.
b Find the total amount to be repaid.
c Find the monthly repayment.
Solve/Think Apply
a I = Prn = 2200 × 9.75 100 × 2 = $429
b Total to be repaid = 2200 + 429 = $2629
c Monthly repayment = 2629 24 = $109.54
The total amount to be repaid is the interest added to the principal.
Monthly repayment = total to be repaid no. of months of the loan
3 Calculate the total amount to be repaid on a simple interest loan of:
a $4500 at 13% p.a. over 3 years b $5750 at 0.9% per month over 15 months
c $7100 at 0.031% per day over 19 days d $5290 at 14% p.a. over 17 months.
4 Chad borrows $14 300 to buy a car. The simple interest rate is 12.5% p.a. and he takes the loan over 3 years. Complete the following to nd the:
a interest on the loan = 14 300 × □ 100 × □ = $
b total to be repaid = 14 300 + ____ = $
c monthly repayment = □ □ = $
5 Monica borrows $5800 to buy a bedroom suite. The simple interest rate is 8.6% p.a. and she takes the loan over 4 years.
a Find the interest on the loan. b Find the total amount to be repaid.
c Find the monthly repayment.
compound interest interest that is calculated on the current balance of an investment, including the interest from the previous time period
For a compound interest investment, the interest earned at the end of each time period is added to the principal. This increases the principal that is used to calculate the interest for the next time period. Therefore, with compound interest you are earning interest on the interest you have previously earned.
EXAMPLE 1A– 3 Calculating the total value of an investment and compound interest earned
$2000 is invested for 3 years at 7% p.a. interest compounded annually.
a Find the amount the $2000 will grow to after 3 years.
b Find the amount of interest earned.
The amount the $2000 will grow to after 3 years is $2450.09.
b The amount of interest earned = 2450.09 2000 = $450.09
Think Apply
a Use I = Prn with P = 2000, r = 0.07 and n = 1 to nd the interest for the rst year of $140. Add $140 to $2000 to get a new principal of $2140, then calculate the interest on $2140.
b Subtract $2000 from the total balance.
Use I = Prn with n = 1 to calculate the interest each year. The principal each year is the previous principal plus the interest for that year. The interest earned is the total balance less the original principal.
6 a Complete the table to determine the nal value of $2800 invested at 7% p.a. compound interest for 3 years.
b Calculate the total interest earned. Interest = 2800 = $____
7 Toby invested $6500 for 4 years at 6.5% p.a. interest compounded annually.
a Using a table, nd the value of Toby’s investment after 4 years.
b Find the amount of interest earned by Toby in the 4 years.
8 a Complete the table to determine the nal value of $980 invested at 3% p.a. compound interest for 4 years.
b Calculate the total interest earned.
c Use digital technology to produce a graph of the value of the investment over 4 years.
9 Adele decided to invest her savings of $10 350 for 5 years at 7.7% p.a. compound interest.
a Complete the table.
b If Adele intends to buy a car that is expected to be valued at $14 495 when her investment matures, will she have enough to buy the car? Explain.
c By how much is the investment over or under the value of the car?
10 June receives a gift of $5000 from her grandparents for her 21st birthday. She looks at different investment options, and wants to compare simple and compound interest investments at 5% p.a.
a Complete the following table to determine the nal values of the two investments after 5 years. Time
Start of rst year
Start of second year
Start of third year
Start of fourth year
Start of fth year
Start of sixth year
$5000
$5250
$5000
$5250
b What is the difference in the value of the investments after the 5 years?
11 Leo wants to compare the potential value of two different investment opportunities. Bank A offers a simple interest rate of 6.2% p.a. and bank B offers a compound interest rate of 6.0% p.a., with the interest compounded monthly.
a If $10 000 is invested with each bank at the start of the year, which investment will have the higher balance at the end of the rst year, and by how much?
b To receive the offered interest rates, the investments have to be made for a minimum of 2 years. Which investment will have the higher balance at the end of the second year, and by how much?
c Explain why the answers to parts a and b are different.
We can use a spreadsheet to generate tables for compound interest investments. Open a new spreadsheet and type in the column headings from the example below into cells A1 to D1. Then follow these instructions. Enter in the amount of the principal (in dollars) into cell B2.
Type the formula =a*B2 into cell C2, where a represents the interest rate per time period expressed as a decimal. Fill down to C5 and beyond.
Type the formula =B2+C2 into cell D2 and ll down to D5 and beyond.
Type the formula =D2 into cell B3 and ll down to B5 and beyond.
A
B C D
12 a $1000 is invested at 7% p.a. interest compounding annually. Use a spreadsheet to calculate the value of the investment at the end of each year for 10 years.
b Use digital technology to produce a graph showing the value of the investment over a period of 10 years.
c On the same set of axes as part b, draw a simple interest graph for the same time period, but with a rate of 9% p.a.
d Use the graph drawn in part c to determine the number of years it takes for the two investments to be the same total amount.
13 a $4000 is invested at 7.4% p.a. interest compounding annually. Use a spreadsheet to create a table showing the value of the investment at the end of each year for 10 years.
b Use digital technology to produce a graph showing the value of the investment over a period of 10 years.
c Find the time for the investment to be worth $6500.
d On the same set of axes as part b, draw a straight line joining the point representing the initial value of the investment and the point representing the investment value after 10 years.
e Calculate the gradient of the straight line drawn for part d to help you determine the equivalent simple interest rate.
14 An amount of $70 000 is to be invested for 9 years.
a Use a spreadsheet to determine the total interest earned on the investment if the initial amount is invested at:
i 9.2% p.a. simple interest
ii 9.2% p.a. compound interest with interest compounded annually.
b Explain why the nal value is different for the two investment options.
c On the one set of axes, draw graphs to show how the value of the investment changes for each option over the 9 years.
d The graph for simple interest shows a linear relationship. Explain why.
e The graph for compound interest shows a non-linear relationship. From the shape, what type of relationship can be seen? (Hint: consider whether it has the shape of a quadratic, cubic, exponential or reciprocal relationship.) Explain your choice.
f The graph for a simple interest investment has the equation A = Prn + P, where A is the nal value of the investment, P is the principal, r is the interest rate and n is the number of time periods. How does this relate to the general equation of y = mx + c?
g The graph for compound interest has the equation A = P(1 + r)n. How does this relate to the general equation of y = kax? Does this con rm your choice of non-linear relationship in part e?
15 An amount of $100 000 is to be invested for 10 years.
a Use a spreadsheet to determine the nal value of the investment if the initial amount is invested at:
i 8.5% p.a. simple interest
ii 8.5% p.a. compound interest with interest compounded annually.
b Explain why the nal value is different for the two investment options.
c On the one set of axes, use digital technology to draw graphs that show how the value of the investment changes for each option over the 10 years.
d What type of relationship does the graph for simple interest show? Explain.
e What type of relationship does the graph for compound interest show? Explain.
f Using the fact that simple interest follows a linear model and compound interest follows an exponential model, explain why investors prefer to invest their money so that it earns compound interest rather than simple interest.
1B The compound interest formula
These resources are available on your obook assess:
• Video tutorial 1B: Watch and listen to an explanation of Example 1B–1
• Spreadsheet 1B: Use the compound interest formula
• Worksheet 1B: Practise your skills with extra problems for compound interest
• Investigation 1B: Investigate another use of the compound interest formula
• assess quiz 1B: Test your skills with an auto-correcting multiple-choice quiz
In the nancial world, the principal, or initial amount, is known as the present value of the investment. The amount to which the principal grows is known as the future value of the investment.
Compound interest can be calculated by using the following formula.
Compound interest formula
FV = PV(1 + r)n
where FV = the future value
PV = the present value
r = interest rate per compounding period
n = number of compounding periods
EXAMPLE 1B– 1 Finding the interest earned for a compound interest investment
a Use the compound interest formula to calculate the future value of a xed term investment of $5000 over 5 years at 6.5% p.a. interest compounding yearly.
b Find the total interest earned.
Solve Think Apply
a FV = PV(1 + r)n
= 5000 × (1 + 0.065)5
= 5000 × (1.065)5
= $6850.43
b Interest = 6850.43 5000
= $1850.43
PV = 5000
r = 0.065, as the compounding period is annual, the interest rate is the annual rate.
n = 5, as the compounding period is annual, the number of time periods is the same as the number of years.
Subtract the present value of $5000 from the answer to part a
The interest rate and the time period must correspond. Substitute into the formula. The interest is calculated by subtracting the original investment amount (the present value) from the future value.
EXERCISE 1B The compound interest formula
1 a Using the compound interest formula, complete the following to calculate the future value when $6500 is invested for 7 years at 4.2% p.a. interest compounding annually.
PV = r = 4.2 ÷ = 0. n =
FV = PV(1 + r)n = (1 + )7
= 6500( )□ =
b Complete the following to nd the total interest earned.
Interest = 6500 =
2 a Use the compound interest formula to calculate the future value of a xed-term investment of $4000 over 6 years at 7.5% p.a. interest compounding yearly.
b Find the total interest earned.
3 a Use the compound interest formula to calculate the future value of a xed-term investment of $6453 over 3 years at 4.95% p.a. interest compounding yearly.
b Find the total interest earned.
EXAMPLE 1B– 2 Calculating the future value of a compound interest investment
Use the compound interest formula to calculate the future value of a xed-term investment of $3500 over 7 years at 6.2% p.a. interest compounding quarterly.
Solve Think Apply
FV = PV(1 + r)n
= 3500 × (1 + 0.0155)28
= 5000 × (1.0155)28
= $5384.01
There are 4 quarters in a year, so n = 7 × 4 = 28 time periods.
Quarterly interest rate is the annual rate divided by 4: r = 0.062 ÷ 4 = 0.0155 Present value is $3500.
Calculate to nd the number of time periods, then nd the interest rate for the required time period. Substitute into the compound interest formula. Usually, the time period is multiplied and the interest rate is divided by the same number.
4 Using the compound interest formula, complete the following to calculate the future value of a xed-term investment of $1200 over 5 years at 8.4% p.a. interest compounding quarterly.
PV = n = × 4 = r = 0.084 ÷ =
FV = PV(1 + r)n
= 1200(1 + ) □
= 1200 × ( ) □ =
5 Use the compound interest formula to calculate the future value of a xed-term investment of $950 over 3 years at 4.1% p.a. interest compounding quarterly.
6 Using the values in this table, calculate the future value of each xed-term investment.
7 Calculate the future value of the following investments to determine which option gives the best return over a year on $5000 invested. How much better is the return on this investment than on the other two investments?
a 6% p.a. compounding yearly
c 5.85% p.a. compounding monthly
b 5.9% p.a. compounded quarterly
The compound interest formula can be rearranged to determine the amount that needs to be invested if the required future value is known.
PV = FV (1 + r) n
EXAMPLE 1B– 3 Calculating the present value of a compound interest investment
Calculate the amount that must be invested at 6% p.a. interest compounding annually to have $5000 at the end of 4 years.
Solve Think Apply
PV = FV (1 + r) n
= 5000 (1 + 0.06) 4
= 5000 (1.06) 4
= $3960.47
$3960.47 must be invested.
FV = 5000, r = 0.06, n = 4
Substitute into the rearranged formula to nd PV.
Find the required values and substitute into the rearranged formula. Solve the equation to determine the required value.
8 Complete the following to calculate the amount that must be invested at 7% p.a. interest compounding annually to have $6000 at the end of 5 years.
FV = 6000 r = n =
PV = FV (1 + r) n
= 6000 (1 + 0.07) □
= 6000
= $____
9 Calculate the amount that must be invested at 5% p.a. interest compounding annually to have $1600 at the end of 7 years.
10 Calculate the amount that must be invested at 11.2% p.a. interest compounding annually to have $10 000 at the end of 6 years.
EXAMPLE 1B– 4 Calculating the present value for a non- annual compounding period
Calculate the amount that must be invested at 7.5% p.a. interest compounding quarterly to have $1700 at the end of 3 years.
Solve
PV = 1700 (1 + r) n
= 1700 (1 + 0.01 875) 12
= 1700 (1.01 875) 12
= $1360.31 $1360.31 must be invested.
Think Apply
Quarterly interest rate
= 0.075 ÷ 4 = 0.01 875
Number of quarters
= 3 × 4 = 12
FV = 1700, r = 0.01 875, n = 12
Substitute into the formula and solve.
Calculate to nd the number of time periods, then divide to nd the interest rate for the required time period.
Substitute and solve.
11 Complete the following to calculate the amount that must be invested at 8.5% p.a. interest compounding quarterly to have $2300 at the end of 7 years.
Quarterly interest rate = 0.085 ÷ =
Number of quarters = × 4 n = PV = FV
(1 + r) n = 2300
(1 + ___) □ = 2300 = $____
12 Calculate the amount that must be invested at:
a 4% p.a. interest compounding quarterly to have $1540 at the end of 8 years
b 10.2% p.a. interest compounding quarterly to have $10 000 at the end of 4 years
c 9% p.a. interest compounding monthly to have $3000 at the end of 3 years
d 4.5% p.a. interest compounding monthly to have $950 at the end of 8 years
e 7.2% p.a. interest compounding six-monthly to have $2000 at the end of 10 years
f 6.3% p.a. interest compounding six-monthly to have $7500 at the end of 5.5 years.
13 How much does Paul need to invest at 4.95% to have $2500 in 3 years’ time, if the interest compounds monthly?
14 A company will need $20 000 to replace its computer system in 4 years’ time. How much needs to be invested at 4.95% p.a. interest compounding quarterly to have this amount available?
Justine wants to invest $3000 for 3 years, but is struggling to decide where to invest her money. She narrows her choices down to three options.
Option A: A simple interest account at 9% p.a.
Option B: A compound interest account at 8.5% p.a., with interest compounded annually
Option C: A compound interest account at 8.3% p.a., with interest compounded daily
Determine which option will give Justine the highest future value on her investment.
Solve
Option A:
I = Prn
= 3000 × 9 100 × 3
= $810
Future value = 3000 + 810 = $3810
Option B:
FV = PV (1 + r) n
= 3000 × (1 + 0.085) 3
= 3000 × (1.085) 3 = $3831.87
Option C:
FV = PV (1 + r) n
= 3000 × (1 + 0.083 365 ) 1095
= 3000 × (1.000 227...) 1095
= $3848.12
Think Apply
Option A:
Substitute P = 3000, r = 9 100 and n = 3 into I = Prn
Add the interest to the principal to determine the future value. Calculate the nal value of each investment option by using the simple interest and compound interest formulas.
Option B:
Substitute PV = 3000, r = 0.085 and n = 3 into FV = PV(1 + r)n .
Option C:
Substitute PV = 3000, r = 0.083 365 and n = 365 × 3 = 1095 into FV = PV(1 + r)n .
Option C will give Justine the highest future value on her investment.
15 Sienna is looking to invest $5500 for 3 years, but would like some help in picking the best investment option.
Determine which option will give Sienna the highest future value on her investment.
Option A: A simple interest account at 6.6% p.a.
Option B: A compound interest account at 6.2% p.a., with interest compounded annually
Option C: A compound interest account at 6% p.a., with interest compounded monthly
16 Georgio has $12 000 to invest and wants to invest it for 4 years. Which investment option should he choose?
Option A: Compound interest at 4.7% p.a., with interest compounded annually
Option B: Compound interest at 4.45% p.a., with interest compounded monthly
Option C: Compound interest at 4.35% p.a., with interest compounded weekly
17 Romeo is given a $6000 bonus at his job and decides to invest the full amount. He wants to investigate the effect that different compound interest rates will have on the future value of his investment.
Use the compound interest formula to determine the amount of interest Romeo will receive for investing his $6000 for 3 years at:
a 5% p.a.
b 5.5% p.a.
c 6% p.a.
18 Juliet is saving for a deposit for a home. She has $24 500 in her savings account, and is looking to invest the full amount in a high-interest investment opportunity. To gain the special interest rate of 9.9% p.a. (compounding annually) Juliet must keep the full balance in the investment until the end of the agreedupon term.
What will the future value of Juliet’s investment be if she decides to invest her savings for:
a 2 years?
b 3 years?
c 4 years?
19 Sam invested $3000 for three years in a compound interest account paying 8.1% p.a. with interest compounded monthly. Sam’s brother, Lee, also invested $3000 for three years, but in a simple interest account paying 8.1% p.a. How much more interest did Sam earn over the period of the investment?
20 Dijana’s nancial advisor suggested that Dijana put her $20 000 inheritance for 5 years into a compound interest investment paying 7.8% p.a. with interest compounded weekly.
a Calculate the future value of Dijana’s investment after 5 years.
b What equivalent simple interest rate p.a. will Dijana need to nd to achieve the same return? Give your answer to two decimal places.
21 A sum of $5000 was invested for 4 years in a compound interest account paying 5.7% p.a. with interest compounded quarterly. How much would need to be invested to achieve the same amount of interest if the interest rate was 4.2% p.a. compounded monthly? Give your answer to the nearest dollar.
22 Xavier’s trust account matures on his 18th birthday. On that day it will be worth $12 500. His mother persuades him to invest the full amount for at least 3 years and together they nd three different investment opportunities.
Option A: Compound interest at 7.55% p.a., with interest compounded monthly
Option B: Simple interest at 7.4% p.a., with a bonus payment of $1000 paid after 3 years
Option C: Compound interest at 4.5% p.a., with interest compounded annually, plus a bonus 5% of the future value added after 3 years.
a Calculate the potential future value of each of the investment options.
b What is the difference between the options with the lowest and highest future values?
23 Julio is helping his father out with his nances and they’re looking for a place to invest his savings. They’ve narrowed down their choices to the following options.
Option A: A compound interest account paying 5.6% p.a. compound interest, with interest compounded daily
Option B: Investing in the stock market, with an expected long-term return of 9.8% p.a.
Option C: Investing in the property market, with an expected long-term return of 9.5% p.a.
a Julio’s father is willing to invest $50 000. If he invests his money for 5 years, determine the expected future value for each option.
b Why might Julio advise his father to not invest in the option that has the highest expected future value?
24 Samantha inherited $40 000 from her grandparents, and decided to invest the full amount for at least 6 years. She narrows her investment options down to the following 3 three choices.
Option A: Compound interest at 6.5% p.a. for the rst 3 years, and 7.5% p.a. for each subsequent year, with interest compounded monthly
Option B: Simple interest at 8.2% p.a. with a bonus of 2% of the future value at the end of the investment
Option C: Compound interest at 7.1% p.a. with interest compounded daily
a Which option should Samantha choose if she goes for a 6-year investment? How much does this option return?
b Which option should Samantha choose if she goes for a 10-year investment? How much does this option return?
c How much interest does Samantha earn in the 10th year under each investment option?
25 Use trial and error to determine the compound interest rate that will give a future value of $5165.22 if $4000 is invested for 4 years with interest compounded annually.
26 If the interest rate on a compound interest investment is doubled, will the interest earned also be doubled? Use an example to help you illustrate your answer.
We can enter the compound interest formula into a spreadsheet to determine the future value of an investment given the present value, the interest rate per annum, the number of compounding periods per annum, and the term of the investment.
Type in the headings in column A, and enter in the formula into cell B1, as shown.
To help you, you might like to use the prepared spreadsheet le (Spreadsheet 1B) provided on your obook assess.
27 a Use a spreadsheet to calculate the future value of a $5000 investment, invested for 3 years with the interest compounded annually, at the following compound interest rates.
i 4% ii 6% iii 8% iv 10%
b Discuss how changing the interest rate of a compound interest investment affects the future value of the investment.
28 a Use a spreadsheet to calculate the future value of a $5000 investment, invested for 2 years at 5% p.a. at the following compounding periods.
i Annually ii Quarterly iii Monthly iv Daily
b Discuss how changing the compounding period of a compound interest investment affects the future value of the investment.
29 a Use a spreadsheet to calculate the future value of a $10 000 investment, invested at 6% p.a. with interest compounded monthly and the following term periods.
i 1 year ii 2 years iii 4 years iv 8 years
b Does doubling the term of the investment double the amount of interest earned on the investment? Discuss why or why not.
30 a Research a number of different banks to nd the interest rates for term deposits. Use a term deposit time period of 3 months and nd the rates offered by three or four different banks.
b Find the value of an investment of $10 000 at the end of a 3-month term deposit at each bank.
c Use a spreadsheet to calculate the value of the $10 000 if it is reinvested (rolled over) at the same 3-month term deposit interest rate for 3 years. Graph the results using a spreadsheet.
d Find the value of $10 000 if it is reinvested in a 6-month term deposit, rolled over for 3 years. Graph the result.
e For the same bank, determine which of the two strategies results in a larger amount at the end.
f Repeat with other term deposits over different time periods rolled over for 3 years. Is there a pattern? Explain.
1C Using a compounded value table
These resources are available on your obook assess:
• assess quiz 1C: Test your skills with an auto-correcting multiple-choice quiz
A compounded value interest table can be used to quickly and ef ciently calculate the future value of a compound interest investment, given the number of time periods and the interest rate per time period.
EXAMPLE 1C– 1 Using the table of compounded values to find the present value
Taryn needs to have $5000 in 6 years’ time. She can invest money at 4% p.a. compounded annually. What amount needs to be invested now? Use the compounded values in the table to help you answer the question.
Solve
Amount to be invested = 5000 ÷ 1.265 = $3952.57
Taryn needs to invest $3952.57 now to have $5000 in 6 years’ time.
Find the value in the table at the intersection of the time and rate. Divide the future value given by this amount to nd the present value. Time period Interest
Think Apply
Find the value at the intersection of the 6th row and 4% column. This is 1.265. Divide 5000 by 1.265 to nd the present value.
