9 Interest and

depreciation
Syllabus topic — F1.1 Interest and depreciation
This topic will develop your skills in calculating and graphing simple
interest. It presents a variety of applications involving simple interest,
including straight-line depreciation.

Outcomes
• Calculate simple interest for different rates and periods.
• Apply percentage increase or decrease in various contexts.
• Calculate GST in absolute and percentage terms.
• Compare simple interest graphs for different rates and periods.
• Calculate the depreciation of an asset using straight-line method.
• Calculate and graph compound interest as a repeated application of simple interest.

Digital Resources for this chapter

In the Interactive Textbook:
• Videos • Literacy worksheet • Quick Quiz • Solutions (enabled • Widgets
• Spreadsheets • Study guide by teacher)

In the Online Teaching Suite:

• Teaching Program • Tests • Review Quiz • Teaching Notes

Knowledge check
In the Interactive Textbook you can take a test of prior knowledge required for
this chapter, and depending on your score you may be directed to revision from
 the previous years’ work.

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320 Chapter 9 Interest and depreciation 9A

Simple interest
9A
Interest is paid for borrowing money. There are different ways of calculating interest. Flat-rate loans
use simple interest. Simple interest (or flat interest) is a fixed percentage of the amount borrowed
and is calculated on the original amount. For example, if you borrow $10 000 from a bank at a
simple interest rate of 6% per annum (per year) you would be required to pay $600 each year. That
is,

=
Interest = ⋅ $10 000 0.06 or
() 6
100 $600

Flat-rate loans are calculated on the initial amount borrowed or the principal. The amount owed on
the loan is calculated by adding the interest to the principal.

SIMPLE INTEREST

I P = rn A P = + I
I – Interest (simple or flat) to be paid for borrowing the money
P – Principal is the initial amount of money borrowed
r – Rate of simple interest per period, expressed as a decimal
n – Number of time periods
A – Amount owed or total to be paid

Example 1: Calculating simple interest 9A

Abbey applied for a flat-rate loan of $40 000 at 9% per annum simple interest. She plans to repay
the loan after two years and six months.
a How much interest will be paid?
b What is the total owing at the end of two years and six months?

SOLUTION:
2 Substitute P r = = 40 000, 0.09 and n = 2.5 into the
a
1 Write the simple interest formula.
 I P = rn
formula.
3 Evaluate.
4 Write the answer in words. =⋅⋅
5 Write the amount owed formula. 40 000 0.09 2.5

= $9000

Simple interest owed is $9000. A P = + I

=+
b
40 000 9000
6 Substitute P = 40 000 and I = 9000 into the formula.
7 Evaluate. = 49000
8 Write the answer in words.
Amount owed is $49000.

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9A Simple interest 321

Example 2: Calculating the simple interest paid to a bank account 9A

The table opposite shows the entries in Shane’s bank 1 Jun

account. If the bank pays interest at a rate of 3% per
annum on the minimum monthly balance, find the
interest payable for the month of May correct to the
nearest cent. 1 Determine the minimum monthly balance for May.
2 Write the simple interest formula.
SOLUTION:
3 Substitute P r = = $440.00, 0.03, and n = ( ) 12
1
Date Transactio
n1month into the formula.
The minimum balance in the account for May was
30 Mar Pay $440.00 I P = rn
1
4 May Cash = $440 0.03 12
⋅⋅
16 May Cash

=
$1.10

= $1.10
4 Evaluate.
5 Write answer in words.
Interest payable is $1.10

Example 3: Finding the principal for a simple interest loan 9A

 Noah applied for a simple interest car loan with an interest rate
of
9% p.a. He was told the total simple interest would be $6300 for
1
3 2 years. What was the principal?

SOLUTION:
I Prn
1 Write the simple interest formula. 2 Substitute I r = = 6300 0.09 3.5 P = ⋅ ⋅

6300, 0.09 and n = 3.5 into the formula.

6300
3 Make P the subject of the formula by dividing both
P=
sides by (0.09 3.5) ⋅ . ⋅

= (0.09 3.5)

=
4 Evaluate. $20 000

5 Write the answer in words. Principal is $20 000.

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322 Chapter 9 Interest and depreciation 9A

Loan repayments
A loan repayment is the amount of money to be paid at regular intervals over the time period. The
interval is often fortnightly or monthly.

LOAN REPAYMENTS

Loan repayment T = ⎟ otal to be paid Number of repayments

Example 4: Calculating a loan

repayment on a simple interest loan
9A

Jessica wishes to buy a lounge suite priced

at
 $2750. She chooses to buy it on terms by paying
a 10% deposit and borrowing the balance. Interest
is charged at 11.5% p.a. on the amount borrowed.
Jessica makes fortnightly repayments over 3 years.
Calculate her fortnightly repayments.

SOLUTION:
Deposit 10% of $2750
1 Calculate the deposit by multiplying 10% or 0.10 by 2 Calculate the balance by subtracting
$2750. =
= $275

=⋅ the deposit ( ) $275 from the cost

0.10 2750
Balance 2750 275 = −

price ( ) $2750 . =
$2475

3 Write the simple interest formula. 4 Substitute P r = = I P = rn

2475, 0.115 and n = 3 into the formula. = ⋅ ⋅ 2475 0.115 3

=
5 Evaluate. $853.875

6 Write the loan repayment formula. (2475 + 853.875)

by multiplying the fortnights in a year (26) by the number
RepaymentTotal to be paid of years (3).
= =
7 Calculate the total to be paid by ⋅

adding the balance ( ) $2475 and the (3 26)

=
9 Evaluate correct to two decimal
=

interest ( ) $853.875 . ≈
8 Calculate the number of repayments places.
42.67788462 42.68
Number of repayments 10 Write the answer in words.
Principal + Interest Number of repayments Fortnightly repayments are $42.68.

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9A Simple interest 323 LEVEL 1
Example 1a 1 Calculate the amount of simple interest for each of the
Exercise 9A following loans.

Example 1b 1
16% p.a., time period 7 2 = years c Principal = $12500,
a Principal = $25000, interest rate = 11% p.a., timeperiod
simple interest rate = 11.4% p.a., time period 4.5 = years
1
= 4 years b Principal $ = 400 000, interest rate 8 4 = % 1
d Principal $ = 6000, simple interestrate 4 2 = % p.a., time
p.a., timeperiod = 5years c Principal = $560 000, interest period = 6months e Principal = $40 000, simple

rate = 6.75%p.a., time period 15 = years d Principal = interestrate = 7.75% p.a., timeperiod 42months =
$7400, interest rate = 7% p.a., time period 18months = e 3 A sum of $170 000 was borrowed for 3 years.

Principal = $80 000, interest rate = 9.25% p.a., time a Find the simple interest owed if the rate of interest is
6.5% per annum. b What is the amount owed at the end of
period 30 months = 3 years?

2 Calculate the amount owed for each of the following 4 Hayley intends to borrow $2700 to build a
loans. driveway for her new house. She is offered a
a Principal $ = 800, simple interest rate = 6% p.a., time flat-rate loan with a simple interest rate of
14.5% per annum. How much interest will be
period = 3years b Principal = $5200, simple interest rate = owed after 3 months? Answer correct to the
nearest cent.

Example 2
5 The table shows the entries in 18 Mar Cash
Julia’s bank account. If the bank pays
interest at a rate of 4% per annum on 1 Apr
the minimum monthly balance, find
the interest payable for the month of
March correct to the nearest cent.
Date Transactio
n

28 Feb Pay

3 Mar Cash
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324 Chapter 9 Interest and depreciation 9A

LEVEL 2

6 Create the spreadsheet below.

9AQ6
a Cell D5 has a formula that calculates the simple interest. Enter this formula.
b Fill down the contents of D6 to D8 using the formula for D5.
c Cell E5 has a formula that calculates the amount owed. Enter this formula.
d Fill down the contents of E6 to E8 using the formula for E5.
e Change the interest rate from 8% to 10%.
f Change the time period from 20 years to 15 years.

7 Kim buys a television for $1800. He pays it off monthly over 2 years at a flat interest rate of
12.5% per annum.
a How many months will it take Kim to pay for the television?
b What is the interest charged for the 2 years?
c How much per month will he pay? Give your answer to the nearest cent.

8 Mitchell approached a bank for a

business
loan of $22000. The interest rate is
10.5% p.a. flat. He decides to repay
the loan
over a period of 4 years.
a What is the principal?
b What is the rate of interest?
c What will be the amount of interest
charged over that period?
d What will be the monthly repayment? Give
the answer correct to the nearest cent.
Example 4 a What is the balance?
9 Jordan decides to buy a car for $23000.
b What is the total amount of interest to be paid?
He has saved $9000 for the deposit and takes out a simple
c What will be his monthly repayment? Answer correct to
interest loan over 2 years for the balance. The interest
the nearest cent.
charged is 13% per annum.
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9A Simple interest 325

LEVEL 3

10 Mia borrowed $400 000 at a flat rate of interest of 8.5% per annum. This rate was fixed for
2 years on the principal. She pays back the interest only over this period.
a How much interest is to be paid over the 2 years?
b After paying the fixed rate of interest for the first year, Mia finds the bank will decrease the
flat interest rate to 7.5% if she pays a charge of $2000. How much will she save by changing
to the lower interest rate for the last year?

11 Cooper plans to borrow money to

purchase a car and considers the
fortnightly repayment guide shown in the table.
He decides to borrow $19000 and pay back the
loan in fortnightly
instalments over 2 years. What is the flat rate of
interest per annum on this loan, correct to two
decimal places?
Amount Fortnightly repayments
borrowed
1 year 2 years 3 years

$18 000 $755 $427 $305

$18500 $783 $429 $307

$19 000 $804 $431 $309

 12 A truck is advertised at $36000. It can be bought on terms for a 20% deposit and repayments of
$276 per week for 3 years. Assume there are 52 weeks in the year.
a What is the deposit?
b Calculate the total cost of the truck if bought on these terms.
c What is the total interest paid?
d What is the flat interest rate for the loan, correct to one decimal place?

13 A painting was purchased on terms

with a 20%
deposit and the balance to be paid at
$370 per
month for 2 years. Determine the flat
rate of
interest charged on the painting given
that it
has a cash price of $7500.

14 Grace takes a loan of $30 000 over 60 months

for a swimming pool. The repayment rate is
$677.50 per month.
a How much will Grace pay back altogether?
b What is the flat interest rate per annum for
the loan, correct to one decimal place?
c Grace would like to increase the loan to $40 000 to landscape the pool. What would be her
monthly repayment, assuming the same time period and flat interest rate? Answer correct to
the nearest cent.

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326 Chapter 9 Interest and depreciation 9B

9B
Simple interest graphs
When graphing simple interest, make the horizontal axis the time period and the vertical axis the
interest earned. Simple interest will increase by a constant amount each time period. This will result
in a straight-line graph.

SIMPLE INTEREST GRAPHS

1 Construct a table of values for I and n using the simple interest formula.
2 Draw a number plane with n the horizontal axis and I the vertical axis. Plot the points.
3 Join the points to make a straight line.
 Example 5: Constructing a simple interest graph 9B

Draw a graph showing the amount of simple interest earned over a period of 4 years if $1000 is
invested at 6% p.a. Use the graph to estimate the interest earned after 8 years.

SOLUTION:

=
1 Write the simple interest formula. n
I Prn
= ⋅ ⋅ 1000 0.06
60
n
=

2 Substitute P r = = 1000, 0.06

and n into the formula. n 0 1 2 3 4
3 Draw a table of values for I and n.
I 0 60 120 180 240
4 Let n = 0,1, 2, 3 and 4. Find the interest( )I using I n =
60 . 5 Draw a number plane with n
Simple interest on

estimate I. (I = 480 when n = 8).

as the horizontal axis and I as the $1000 at 6% p.a.
vertical axis.
6 Plot the points (0, 0), (1, 60), I
(2,120), (3,180) and (4, 240). 7 Extend500
the line to estimate the value of I 400

when n = 8. 8 Read the graph to

300
200 n
100 14235678
9 Write the answer in words. Interest after 8 years is approximately $480.

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9B Simple interest graphs 327 Example 5

Exercise 9B
1 Luke invested $1000 at 2% per annum simple interest
LEVEL 1 for 3 years.
a Simplify the simple interest formula ( ) I P = rn by substituting values for the principal and
the interest rate.
b Use this formula to complete the following table of values.
n 0 1 2 3 4

I
 c Draw a number plane with n as the horizontal axis and I as the vertical axis. d
Plot the points from the table of values. Join the points to make a straight line.

2 Nicholas invested $1000 at 7% per annum simple interest for 4 years.

a Simplify the simple interest formula ( ) I P = rn by substituting values for the principal and
the interest rate.
b Use this formula to complete the following table of values.
n 0 1 2 3 4

c Draw a number plane with n as the horizontal axis and I as the vertical axis. d
Plot the points from the table of values. Join the points to make a straight line. e
1
Use the graph to find the interest after 2 2 years.
f Extend the graph to find the interest after 6 years.
g Find the time when the interest is $210.

3 Melissa invested $600 at 5% per annum simple interest for 5 years.

a Simplify the simple interest formula ( ) I P = rn by substituting values for the principal and
the interest rate.
b Use this formula to complete the following table of values.
n 0 1 2 3 4 5

c Draw a number plane with n as the horizontal axis and I as the vertical axis. d
Plot the points from the table of values. Join the points to make a straight line. e
1
Use the graph to find the interest after 3 2 years.
f Extend the graph to find the interest after 6 years.
g Find the time when the interest is $360.

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328 Chapter 9 Interest and depreciation 9B

LEVEL 2

4 Draw a graph showing the amount of simple interest earned over a period of 4 years if $1000 is
invested at 4% p.a. Use the graph to estimate the interest earned after 6 years.

5 Chloe is comparing three different interest rates for a possible investment.

 a Draw a graph to represent the interest earned over 5 years on:
i $5000 invested at 5% per annum simple interest
ii $5000 invested at 7% per annum simple interest
iii $5000 invested at 9% per annum simple interest.
1
b How much does each investment earn after 2 2 years?
c How much does each investment earn after 5 years?
d Find the time for each investment to earn $1000 in interest.

6 Mick is comparing three different interest rates for a possible investment.

a Draw a graph to represent the interest earned for 6 months on:
i $100 000 invested at 6% p.a. simple interest
ii $100 000 invested at 9% p.a. simple interest
iii $100 000 invested at 12% p.a. simple interest.
b How much does each investment earn after 1 month?
c How much does each investment earn after 6 months?
d Find the time for each investment to earn $2000 in interest.

LEVEL 3

7 The table below gives details for a fixed-term deposit.

Time period Simple interest rate per annum

Less than 3 months 6.5%

3 to 6 months 7.0%

6 to 12 months 7.5%

12 to 24 months 8.1%

24 to 48 months 8.3%

Chris has $50 000 to invest in a fixed-term deposit. Draw a separate graph to represent the
interest earned after 12 months given these investments.
a Fixed-term deposit for 3 months. Assume Chris reinvests his $50000 at the end of every
3 months.
b Fixed-term deposit for 6 months. Assume Chris reinvests his $50000 at the end of the first
6 months.
c Fixed-term deposit for 12 months

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9C Percentage increase or decrease 329

9C
Percentage increase or decrease
 Percentage change involves increasing or decreasing a quantity as a percentage of the original
amount of the quantity.

PERCENTAGE INCREASE PERCENTAGE DECREASE

1 Add the % increase to 100%. 1 Subtract the % decrease from 100%.

2 Multiply the above percentage by the amount. 2 Multiply the above percentage by the amount.

Example 6: Calculating the percentage change 9C The retail price of a toaster is $36

and is to be increased by 5%. What is the new price? SOLUTION:

1 Add the 5% increase to 100%. 1.05 36

2 Write the quantity (new price) to be found. 3 Multiply
the new percentage (105%) by the amount. 4 Evaluate and write using correct units.
100% 5% 105% + = = =
$37.80
Newprice 105% of $36 = ⋅ 5 Write the answer in words.
New price is $37.80.

Example 7: Calculating consecutive percentage changes 9C Increase $75 by 20%

and then decrease the result by 20%.

SOLUTION:

100% 20% 120% + = =

1 Add the 20% increase to 100%.
2 Write the quantity (new price) to be found. 3 Multiply
the new percentage (120%) by the amount. Newprice 120% of $75 = ⋅
1.20 75

4 Evaluate and write using correct units.

=
$90
=
5 Subtract the 20% decrease from 100%. 6 Write the
quantity (new price) to be found. 7 Multiply the new
percentage (80%) by the amount. =⋅
100% 20% 80% − = Newprice 80% of $90 0.80 90

$72
=
8 Evaluate and write using correct units.
9 Write the answer in words. New price is $72.
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330 Chapter 9 Interest and depreciation 9C
LEVEL 1 1 What is the amount of the increase for each of the
following?
Example 6

Exercise 9C
a Increase of 10% on $48 b Increase of 30% on $120 c Increase of 15% on
$66 d Increase of 25% on $88 e Increase of 40% on $1340 f Increase of 36%
1
on $196 g Increase of 4.5% on $150 h Increase of 2 % on $24

2 What is the amount of the decrease for each of the following?

a Decrease of 20% on $110 b Decrease of 60% on $260 c Decrease of 35% on
$320 d Decrease of 75% on $1096 e Decrease of 6% on $50 f Decrease of 32%
1
on $36 g Decrease of 12.5% on $640 h Decrease of 1 4 % on $56

3 The David Jones clearance sale has a discount of 30% off the retail price of all clothing.
Find the amount saved on the following items.
a Men’s shirt with a retail price of $80
b Pair of jeans with a retail price of $66
c Ladies jacket with a retail price of $450
d Boy’s shorts with a retail price of $22
e Jumper with a retail price of $124
f Girl’s skirt with a retail price of $50

4 A manager has decided to award a salary increase of 6% to all employees. Find the new salary
of employees currently earning following amounts.
a $46240
b $94860
c $124 280
d $64980

5 Aya has a card that entitles her to a 2.5% discount at the store where she works. How much will
she pay for the following items?
a Vase marked at $190
b Cutlery marked at $240
c Painting marked at $560
d Pot marked at $70

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Example 7 LEVEL 3
9C Percentage increase or decrease 331
9 The cost price of a sound system is $480.
Retail stores have offered a range of successive discounts.
LEVEL 2 Calculate the final price of the sound system at the
following stores.
6 A used car is priced at $18600 and offered for sale at a a Store A: Increase of 10% and then a decrease of 5%
discount of 15%. b Store B: Increase of 40% and then a decrease of 50%
a What is the discounted price of the car? c Store C: Increase of 25% and then a decrease of 15%
b The car dealer decides to reduce the price of this car by d Store D: Increase of 30% and then a decrease of 60%
another 15%. What is the new price of the car?

7 Find the results after these repeated percentage changes.

a Increase $100 by 20% and then decrease the result by
20%.
b Increase $280 by 10% and then increase the result by
5%.
c Decrease $32 by 50% and then increase the result by 10 The price of a clock has been reduced from $200 to
25%. $180.
d Decrease $1400 by 5% and then decrease the result by a What percentage discount has been applied?
5%.
b Two months later the price of the clock was increased
e Increase $960 by 15% and then decrease the result by
by the same percentage discount. What is new price of
10%.
the clock?
f Decrease $72 by 12.5% and then increase the result by 33
1
3%.

8 An electronic store offered a $30 discount on a piece of

software marked at $120. What percentage discount has
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332 Chapter 9 Interest and depreciation 9D

9D
Calculating GST

GST
The Australian Government collects a tax when people purchase goods and services. The tax is
called the GST (Goods and Services Tax) and is 10% of the pre-tax price of the item. There are
exceptions for basic food items and some medical expenses.

GST

To calculate the GST, find 10% of the pre-tax price.

To calculate the total cost of an item, add the GST to the pre-tax price. Alternatively, find
110% of the pre-tax price.
 To calculate the pre-tax price given the total cost of an item, divide the total cost by 110%.

Example 8: Finding the GST 9D

John bought a ticket with a pre-tax price of

$142 to see
a concert at the Sydney Olympic Stadium. He
was also
required to pay a 10% GST.
a How much GST is payable?
b What was the total cost of his ticket
including the
GST?
c What was the pre-tax price of a ticket if the final
price of the ticket was $149.60?

SOLUTION:

=⋅
1 Write the quantity (GST) to be calculated. 2 Multiply
0.10 by 142.
0.10 142
a GST 10% of $142
3 Evaluate and write using correct units.
=
=
$14.20
4 Write the quantity (total cost) to be 7 Write the quantity (pre-tax price) to be calculated.
b = + Total cost $142 $14.20 c Pre-tax price $149.60 110%
=⎟

= =⎟
calculated. $149.60 1.10
5 Add the GST to the cost of the ticket.
=
6 Evaluate and write using correct units.
$156.20 8 Divide the final price by 1.10.
9 Evaluate and write using correct units.
$136

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9D Calculating GST 333

VAT
In some countries the GST is called the VAT (Value Added Tax). The rate of the VAT ranges
from 2% to 25%. The calculations for the VAT are similar to the calculations for the GST except
 the rate of taxation is different.

VAT

• To calculate the VAT, find the VAT rate of the pre-tax price.
• To calculate the total cost of an item, add the VAT to the pre-tax price. Alternatively,
find 100% + VATrateof thepre-tax price.
• To calculate the pre-tax price given the total cost of an item, divide the total cost by
100% + VATrate.

Example 9: Finding the VAT 9D

Singapore has VAT levied at 5%. Olivia bought a microwave in Singapore for $275 plus
a VAT of 5%.

a How much VAT is payable?

b What was the total cost of her microwave including the VAT?
c What was the pre-tax price of another microwave if its final price was $672?

SOLUTION:
a VAT 5% of $275
1 Write the quantity (VAT) to be calculated. 2 Multiply 5 Add the VAT to the cost of the microwave.
0.05 by 275. 6 Evaluate and write using correct units.
= $288.75

=⋅ 7 Write the quantity (pre-tax price) to be calculated.

0.05 275 c=⎟
3 Evaluate and write using correct units.
Pre-tax price $672 105% $672 1.05
=
=⎟
$13.75
8 Divide the final price by 1.05.
4 Write the quantity (total cost) to be calculated.
=
b = + Total cost $275 $13.75
9 Evaluate and write using correct units.
$640
=
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334 Chapter 9 Interest and depreciation 9D
LEVEL 1

Example 8a

Exercise 9D
1 Calculate the GST payable on each of the following
items. The GST rate is 10%.

a Football jumper with a pre-tax price of £150

b Football boots with a pre-tax price of £80
Example 8b Example 9a
c Football shorts with a pre-tax price of £20
d Football socks with a pre-tax price of £8

5 What is the VAT payable in the following countries on

a car with a pre-tax price of 42000? Answer correct to the
nearest whole number.
a Argentina – 21% VAT b Canada – 7% VAT
c China – 17% VAT d India – 12.5% VAT
e Russia – 18% VAT f Singapore – 5% VAT
a Football at $36 b Shoes at $140 c Dinner at $170 d g South Africa – 14% VAT h Switzerland – 6.5% VAT
Bucket at $3.20 e Dress at $490 f Book at $42 g Belt at
$42.90 h Ring at $2600 i Camera at $370

2 Blake received a $620 bill for electrical work and was Mathematics Standard Year 11 ISBN 978-1-108-43463-8 © Powers 2018 Cambridge
University Press Photocopying is restricted under law and this material must not be
required to pay a 10% GST. a How much GST is transferred to another party.

payable?
b What was the total cost of the electrical work including
the GST?

3 Isabelle received an invoice for her gym membership of Example 8c Example 9c

$780. In addition she was required to pay a 10% GST.
a How much GST is payable?
b What was the total cost of her gym membership
including the GST?

4 Great Britain has VAT of 17.5% on clothing. How

much VAT is payable on the following items?

09DQ8
9D Calculating GST 335 LEVEL 3

9 After the 10% GST was added, the price of a mobile

phone was $362. What was the price without GST?
LEVEL 2 Answer correct to the nearest cent.
6 The cost of the following items includes a 10% GST.
What was the pre-GST price? a Pen at $17.60 b 10 What was the original cost of a notebook computer
Calculator at $24.20 c Chair at $99 d DVD at $38.50 e that has a GST-included price of $1850? The rate of GST
Plant at $15.40 f Watch at $198 is 10%. Answer correct to the nearest cent.

7 New Zealand has VAT levied at 12.5%.

a Ata bought a jacket in New Zealand for
$480 plus the VAT. What price did she pay
for the jacket?
b A second jacket costs $390 including the VAT.
What was the price of the jacket before
VAT was added? Answer correct to the nearest
dollar.

8 Create the spreadsheet below.

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a Cell C5 has a formula that calculates a 10% GST. Enter

this formula.
b The formula in cell D5 adds the cost price and the GST.
Enter this formula. Fill down the contents of D6 to D10
using this formula.
336 Chapter 9 Interest and depreciation 9E

9E
Straight-line depreciation
Straight-line depreciation occurs when the value of the item decreases by the same amount each
period. For example, if you buy a car for $20 000 and it depreciates by $2000 each year, the value
of the car after one year is $20 000 $2000 − or $18000. After the second year the value of the car is
 $20 000 $2000 $2000 − − or $16000.

STRAIGHT-LINE DEPRECIATION

S V = −0 Dn
S – Salvage value or current value of an item; also referred to as the book value
V0 – Purchase price of the item; value of the item when n = 0
D – Depreciated amount per time period
n – Number of time periods

Example 10: Calculating the straight-line depreciation 9E

Molly pays $14500 for a used car. It depreciates $1100 each year. How much will it be worth after
three years?

SOLUTION:

= − ⋅ 14500 1100 3
1 Write the straight-line depreciation formula. 2
Substitute V0 = 14500, D = 1100 and n = 3

S V = − Dn =
0 into the formula. Evaluate.
$11200
3 Write the answer in words. The value of the car is $11200.

Example 11: Calculating the salvage value 9E

A new car is purchased for $25800. After 4 years its salvage value is $15160. What is the annual
amount of depreciation, if the amount of depreciation is constant?

SOLUTION:

=−⋅
1 Write the straight-line depreciation formula. 2
Substitute V S 0 = = 25800, 15160 and n = 4 15160 25800 4
D
S V0 Dn
=−
=−
into the formula. 3 Evaluate. D 25800 15160 4
$2660
=

4 Write the answer in words. Annual depreciation is $2660.

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material must not be transferred to another party.

Exercise 9E her car will depreciate in value by $3040 each year.

9E Straight-line depreciation 337 LEVEL 1 a What is the loss in value (depreciation) during the first
year?
b What is the value of the car at the end of the first year?
c What is the loss in value (depreciation) during the
second year?
d What is the value of the car at the end of the second
year?
e What is the loss in value (depreciation) during the third
year?
f What is the value of the car at the end of the third year?

2 Harrison pays $9500 for a motor bike. It depreciates

$850 each year. What will be the value of the bike after:
Example 10 Example 11
a three years? b five years? c seven years? d nine years?

3 Patrick buys a car for $55500 and it is depreciated at a

rate of 10% of its purchase price each year. What is the
1 Mia bought a used car for $15200. She estimates that salvage value of the car after four years?

4 The graph shows the depreciation of 1 0

e What is the value of the car after 3 2 1 2
a car over four years. years? f What is the value of the car Years
a What is the initial value? after 6 months? 34

16 000

b How much did the car depreciate 12 000

each year? Value ($)

c What is the value of the car after 3 8 000

years? d When was the car worth

$8000? 4 000
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material must not be transferred to another party.
338 Chapter 9 Interest and depreciation 9E

LEVEL 2

5 Ryan bought a commercial van three years ago. It has a salvage value of $36000 and
depreciated $4650 each year. How much did Ryan pay for the van?

6 Lucy bought a used car four years ago. It has a salvage value of $16400 and depreciated $1250
each year. How much did Lucy pay for the used car?

7 Ethan has a car worth $9220. It depreciates by $420 each year.

a When will the car be worth $5440?
b When will the car be worth $3340?

8 A ute is purchased for $18600. After two years it has depreciated to $14800 using the straight
line method of depreciation.
a When will the ute be worth $3400?
b When will the ute be worth $1500?

9 A truck is purchased new for $64 000. After 3 years its market value is $44800. a What
is the annual amount of depreciation, if the amount of depreciation is constant? b
Determine the book value of the truck after 7 years.

10 Grace bought an SUV costing $38000. It is expected that the SUV will have an effective life of
10 years and then be sold for $14 000. Assume the SUV depreciated by the same amount each
year. What is the annual depreciation?

11 A utility van is purchased new for $24 000. After 3 years its book value is $15000. What is the
annual amount of depreciation, if the amount of depreciation is constant?

LEVEL 3

12 A caravan is bought for $82000. It is expected to be used for 4 years and then sold for $50 000.
Assume the caravan depreciates by the same amount each year.
a How much does the caravan depreciate each year?
b What is the total amount of depreciation for 4 years?
c Copy and complete the following depreciation table for the first four years.
Year Current value Depreciation Depreciated value

d Graph the value in dollars against the age in years.

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material must not be transferred to another party.
339
Chapter 9 Summary

Summary
Key ideas and chapter summary

Simple interest I P = rn A P = + I

I – Interest (simple or flat) is the amount earned for the use of the money
P – Principal is the initial amount of money borrowed
r – Rate of simple interest per period expressed as a decimal
n – Number of time periods
A – Amount or final balance

Loan repayment T = ⎟ otal to bepaid Number of repayments

Loan repayments

Simple interest graphs 1 Construct a table of values for I and n using I P = rn. 2 Draw a

number plane with n the horizontal axis, I the vertical axis.

Plot the points and join them to make a straight line.

1 Add the
Percentage increase % increase.
2 Multiply the new percentage by the amount.

1 Subtract the
Percentage decrease % decrease from 100%.
2 Multiply the new percentage by the amount.

Calculating GST To calculate the GST, find 10% of the pre-tax price.
To calculate the total cost of an item, add the GST to the pre-tax price.
To calculate the pre-tax price given the total cost of an item, divide the
total cost by 110%

Calculating Value Added Tax (VAT)

the total cost of an item, divide the total cost by (100% +
To calculate the VAT, find the VAT rate of the pre-tax
price. To calculate the total cost of an item, add the VAT VAT rate)
to the pre-tax price. To calculate the pre-tax price given
 Straight-line depreciation S V = 0 – Dn S – Salvage value or current value V0 – Purchase
price of the item
D – Depreciated amount per time period
n – Number of time periods

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340 Chapter 9 Interest and depreciation

Review
Multiple-choice questions

1 What is the flat-rate interest on $1400 at 7% p.a. for 3 years?

A $98 B $294 C $498 D $1694

2 Eve invested $800 for 2 years at a simple interest rate of 4% per annum. What is the total
amount of interest earned by the investment?
A $32 B $64 C $160 D $320

3 David wants to earn $9000 a year in interest. How much must he invest if the simple interest
rate is 15% p.a.? Answer to the nearest dollar.
A $1350 B $10350 C $60 000 D $600 000
4 Use the graph to find the interest A $40% B $100 200
1 C $240 D $1000 160
after 3 2 years. A $120 B $140
120
C $160 D $240
I 80

5 What was the amount of the 40

240 Simple interest at 4% p.a.
investment shown in the graph?

6 What is the new price when $80 is increased by 20% C $80.00 D $76.80
then decreased by 20%? 0
1 2 3 4n 5 6
A $51.20 B $115.20
 7 An electrician quoted $300, excluding GST, to complete a job. A GST of 10% is added to the
job. What is the total cost of the job?
A $303 B $30 C $310 D $330

8 A house owner receives an electricity bill for $598, before a GST of 10% is added. How much
is the GST?
A $5.98 B $538.20 C $592.02 D $59.80

9 After 16% VAT was added, the price of a DVD player was $278. What was the price without
VAT? Answer to the nearest cent.
A $44.48 B $239.67 C $239.66 D $322.48

10 Abdul purchased a used car for $7500 and it depreciated by $700 each year. What is its
depreciated value after 3 years?
A $5400 B $4700 C $6100 D $6800

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341
Chapter 9 Review

Review
Short-answer questions

1 William takes out a flat-rate loan of $60 000 for a period of 5 years, at a simple interest rate of
12% per annum. Find the amount owing at the end of 5 years.

2 Amet would like to purchase a $2000 TV from an electronics shop.

However, to buy the TV he has applied for a flat rate loan over
2 years at 15% p.a. How much does Amet pay altogether for the TV?
 3 Ethan borrowed $1800 at 6% per annum. What is the simple interest
owed between 30 June and 1 September?
1
4 Ruby borrows $36000 for 3 2 years. What is the rate of simple interest needed for her to owe
$8820 in interest?

5 Chloe has paid $49500 interest on a $220 000 loan at a flat interest rate of 10%. What was the
term of the loan?

6 Adam bought a $500 tablet on hire-purchase plan, consisting of a deposit, then monthly
payments. He paid $50 deposit and monthly instalments of $25 for two years. What is the
simple interest rate charged per annum? Answer correct to one decimal place. (Hint: If he paid
a $50 deposit, consider what the value of the principal was.)

7 The minimum monthly balances for three consecutive months are:

$360.00 $525.75 $718.40
How much interest is earned over the three-month period if interest is calculated on the
minimum monthly balance at a rate of 3.5% per annum?

8 Nicholas invested $1000 at 5% per annum simple interest for 5 years.

a Simplify the simple interest formula ( ) I P = rn by substituting values for the principal and
the interest rate.
b Use this formula to complete the following table of values.
n 0 1 2 3 4 5

c Draw a number plane with n as the horizontal axis and I as the vertical axis.
d Plot the points from the table of values. Join the points to make a straight line.
1
e Extend the line to find the amount of interest after 5 2 years.

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342
Chapter 9 Interest and depreciation

Review
9 Jill has a shareholder card that entitles her to a 5% discount at a supermarket. How much will
she pay for the following items? Answer to the nearest cent.
a Breakfast cereal at $7.60 b Milk at $4.90
c Coffee at $14.20 d Cheese at $8.40
 10 An electrician is buying a light fitting for $144 at a hardware store. He receives a clearance
discount of 15% then a trade discount of 10%. How much does the electrician pay for the light
fitting?

11 Ibrahim received a bill of $286 for internet access. In addition he paid a 10%
GST. a How much GST is payable?
b What was the total cost of internet access including the GST?

12 A caravan is purchased for $12 986. After 3 years it has a salvage value of $6020. a
What is the annual amount of depreciation, if the amount of depreciation is constant? b
Determine the book value of the caravan after 5 years.

Extended-response questions

13 Jackson wants to buy a new computer for $3500. He considers buying the computer on a no-
deposit leasing arrangement with terms of 14.4% per annum simple interest over three years
with equal monthly repayments. How much would Jackson’s monthly repayment be under this
proposal? Answer correct to the nearest cent.

14 While shopping on Monday, Madeleine found a dress priced at $350. On Wednesday,

Madeleine noticed the dress was marked down by 20%.
a What is the marked-down price of the dress?
b When Madeleine enquired about the dress, she was offered a further $40 discount off the
marked-down price. She bought the dress. What was Madeleine’s saving as a percentage of
the original price of the dress? Answer correct to one decimal place.

15 Audrey is a florist who has just purchased a second-hand delivery van for $23250 with the
intention of replacing it after three years.
a Calculate the trade-in value of the van in three years time given that it depreciates at the rate
of $3750 per annum.
b The new van Audrey is planning to buy in three years time is worth $44360 today. Given
that the inflation rate is 2.8% per annum, how much will this van cost in three years time? c
How much extra money will Audrey need to be able to buy the new van in three years time if
she sells her second-hand van at the calculated trade-in value?

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material must not be transferred to another party.