1 Financial mathematics

LESSON SEQUENCE
1.1 Overview ...................................................................................................................................................................... 2
1.2 Simple interest ........................................................................................................................................................... 4
1.3 Buying on terms ........................................................................................................................................................ 8
1.4 Compound interest ................................................................................................................................................13
1.5 Depreciation ............................................................................................................................................................. 21
1.6 Review ........................................................................................................................................................................ 25
LESSON
1.1 Overview
Why learn this?
Everyone requires food, housing, clothing and
transport, and a fulfilling social life. Money allows us to
purchase the things we need and desire. The ability to
manage money is key to a financially secure future and
a reasonable retirement with some fun along the way.
Each individual is responsible for managing his or her
own finances; therefore, it is imperative that everyone is
financially literate.
In this topic, you will investigate different investment
options for saving your money. It is important to
understand how investments work to be able to decide
whether an investment is a good idea or not. You will
also investigate the options available to purchase items
such as computers or other small items on terms.
Understanding the principal concepts of depreciation is necessary in many business situations. A sound
knowledge of financial mathematics is essential in a range of careers, including financial consultancy,
accountancy and business management.

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2 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

Exercise 1.1 Pre-test

Select the formula used to calculate the simple interest on $3000 at 18% for 18 months.
3000 × 18 × 18 3000 × 18 × 1.8 3000 × 18 × 1.5
1. MC

A. I = B. I = 3000 × 18 × 18 C. I = D. I =
100 100 100

2. Jett uses his credit card to purchase a PS4 console and games for $500. At the end of 1 month, the
credit company charges 22% p.a. Calculate the amount of interest Jett must pay on his credit card after
1 month, to the nearest cent.

3. Calculate the total cost of a $2500 purchase on the following terms: 15% deposit and weekly payments
of $15 over 5 years.

4. MC Lisa purchases a car for $6500 on the following terms: 20% deposit with the balance plus simple

A. $86.67 B. $73.67 C. $108.33 D. $138.67

interest paid monthly at 12% p.a. over 5 years. Select the correct amount of each monthly repayment.

5. Calculate the simple interest on $3000 invested at 3.75% p.a. for 3 years.

members. If the original price of the jacket was $150, what was the member’s sale price?
6. MC A clothing store offers a discount of 20% during a sale. A further 5% discount is offered to

A. $112.50 B. $114 C. $120 D. $111

7. Calculate the amount of interest for $3000 compounded annually at 3% p.a. for 3 years, correct to the
nearest cent.

Select the value of an investment of $8000 compounded quarterly at 8% p.a. for 5 years.
A. $3887.58 B. $11 754.60 C. $11 887.60 D. $37 287.70
8. MC

9. A computer costs $5500. The value of the computer depreciates by 15% p.a. Calculate the value of the
computer after 3 years, to the nearest cent.

10. MC An industrial machine purchased for $128 000 will have a value of $5000 in 7 years. Select the
approximate rate at which the machine is depreciating per annum.
A. 17% B. 25% C. 37% D. 40%

11. MC An airplane depreciates at a rate of 12% p.a. Select how many years will it take for the airplane to

reduce to half its initial value?

A. 5.4 B. 6 C. 6.5 D. 12

12. MC The value of a tractor is worth $160 000. The value of the tractor depreciates by 20% p.a. What

percentage of its initial value is the tractor worth after 5 years? Select the correct answer.
A. 20% B. 23.8% C. 32.8% D. 42.8%

13. Calculate the interest payable on a loan of $500 000 to be repaid at 8% p.a. flat rate interest over 5
years.

14. Calculate the balance, at the start of the third year, on a loan of $25 000 that is charged at 10% p.a.
reducible over 3 years. The loan is repaid in two annual instalments of $8500.

A monthly credit card statement shows that if $3125 is paid by the due date, no interest will be
charged. If only $500 is paid by the due date and the interest rate is 23%, what is the balance owing at
15. MC

A. $1906.25 B. $2406.25 C. $2625.00 D. $3228.75

the end of the month?

TOPIC 1 Financial mathematics 3

 LESSON
1.2 Simple interest
LEARNING INTENTION
At the end of this lesson you should be able to:
• calculate the simple interest on a loan or an investment
• apply the simple interest formula to determine the time, the rate or the principal.

1.2.1 The simple interest formula

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• The simple interest formula can be used to calculate the interest charged on borrowed money. The
formula is:

Formula for simple interest

I = Prn

• I = amount of interest earned or paid

where:

• P = principal
• r = interest rate as a percentage per annum (yearly), written as a

• n = the duration of the investment in years

decimal (e.g. 2% p.a. is equal to 0.02 p.a.)

WORKED EXAMPLE 1 Calculating simple interest

Calculate the simple interest on $4000 invested at 4.75% p.a. for 4 years.

I = Prn, where
THINK WRITE

P = $4000, r = 0.0475, n = 4
1. Write the formula and the known values
of the variables.
I = 4000 × 0.0475 × 4
= 760
2. Substitute known values to calculate I.

3. Write the answer. The simple interest is $760.

1.2.2 Purchasing goods and simple interest

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• There are many different payment options when purchasing major goods, such as flat screen televisions and
computers. Payment options include:
– cash
– credit cards
– lay-by
– deferred payment
– buying on terms
– loans.
• The cost of purchasing an item can vary depending on the method of payment used.
• Some methods of payment involve borrowing money and, as such, mean that interest is charged on the
money borrowed.
4 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition
 • What are the ways of purchasing the item shown in the advertisement below?

120 cm HD TV
5-year warranty
• High definition

• 16 ∶ 9 aspect ratio
• HDMI ports

• 1080i

$800

Cash
• With cash, the marked price is paid on the day of purchase with nothing more to pay.
• A cash-paying customer can often negotiate with the retailer to obtain a lower price for the item.

Lay-by
• With lay-by, the item is held by the retailer while the customer makes regular payments towards paying off
the marked price.
• In some cases, a small administration fee may be charged.

Credit cards
• With a credit card, the retailer is paid by the credit card provider, generally a financial lender.
• The customer takes immediate possession of the goods.
• The financial lender collates all purchases over a monthly period and bills the customer accordingly. The
entire balance shown on the bill can often be paid with no extra charge, but if the balance is not paid in full,
interest is charged on the outstanding amount, generally at a very high rate.

WORKED EXAMPLE 2 Calculating interest charged

The ticketed price of a mobile phone is $600. Andrew decides to purchase the phone using his credit
card. At the end of 1 month the credit card company charges interest at a rate of 15% p.a.
Calculate the amount of interest that Andrew must pay on his credit card after 1 month.
THINK WRITE

I = Prn
P = $600, r = 0.15, n =
1. Write the formula and the known values of the

variables. Remember that 1 month =

1 1
year. 12
12

I = 600 × 0.15 ×
1
2. Substitute known values to calculate I.

= 7.50
12

3. Write the answer. The interest Andrew pays is $7.50.

TOPIC 1 Financial mathematics 5

 Resources
Resourceseses
Interactivity Simple interest (int-6074)

Exercise 1.2 Simple interest

1.2 Quick quiz 1.2 Exercise

Individual pathways
PRACTISE CONSOLIDATE MASTER
1, 2, 4, 5, 9 3, 6, 8, 10 7, 11, 12, 13

Fluency
1. WE1 Calculate the simple interest payable on a loan of $8000 at 6% p.a. for 5 years.

a. $5000 at 9% p.a. for 4 years. b. $4000 at 7.5% p.a. for 3 years.

2. Calculate the simple interest on each of the following loans.

c. $12 000 at 6.4% p.a. for 2 years. d. $6000 at 8% p.a. for 1

1 1
years.
2 2

a. $50 000 at 6% p.a. for 6 months. b. $12 500 at 12% p.a. for 1 month.
3. Calculate the simple interest on each of the following investments.

c. $7500 at 15% p.a. for 3 months. d. $4000 at 18% p.a. for 18 months.

a. $1500 at 15% p.a. b. $4000 at 16.5% p.a.

4. Calculate the monthly interest charged on each of the following outstanding credit card balances.

c. $2750 at 18% p.a. d. $8594 at 17.5% p.a.

e. $5690 at 21% p.a.

Understanding
5. WE2 The ticketed price of a mobile phone is $800. Elena decides to purchase the phone using her credit

card. After 1 month the credit card company charges interest at a rate of 15% p.a. Calculate the amount of
interest that Elena must pay on her credit card after 1 month.

is $900. When Arup’s credit card statement arrives, it shows that she will pay no interest if she pays the full
6. Arup decides to purchase a new sound system using her credit card. The ticketed price of the sound system

amount by the due date.

6 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

 a. If Arup pays $200 by the due date, what is the balance owing?
b. If the interest rate on the credit card is 18% p.a., how much interest will Arup be charged in the month?

At this time Arup pays another $500 off her credit card. How much interest is Arup then charged for the
c. What will be the balance that Arup owes at the end of the month?
d.
next month?
e. Arup then pays off the entire remaining balance of her card. What was the true cost of the sound system,
including all the interest payments?
7. Carly has an outstanding balance of $3000 on her credit card for June and is charged interest at a rate
of 21% p.a.

b. Carly makes the minimum repayment of $150 and makes no other purchases using the credit card in the
a. Calculate the amount of interest that Carly is charged for June.

c. If Carly had made a repayment of $1000 at the end of June instead of $150, calculate the amount of
next month. Calculate the amount of interest that Carly will be charged for July.

interest that Carly would then have been charged for July.
d. How much would Carly save in July had she made the higher repayment at the end of June?

8. Shane buys a new home theatre system using his credit card. The ticketed price of the bundle is $7500. The

Shane pays off the credit card at a rate of $1000 each month.
interest rate that Shane is charged on his credit card is 18% p.a.

a. Complete the table below.

$7500.00 $112.50 $1000.00 $6612.50

Month Balance owing Interest Payment Closing balance

$6612.50 $99.19 $1000.00

January

$1000.00
February

$1000.00
March

$1000.00
April

$1000.00
May

$1000.00
June

$1015.86 $0
July
August

b. What is the total amount of interest that Shane pays?

c. What is the total cost of purchasing the home theatre system using his credit card?

Communicating, reasoning and problem solving

9. Design a table that compares the features of each method of payment: cash, lay-by and credit card.

10. Choose the most appropriate method of payment for each of the described scenarios below. Explain
your choice.
Scenario 1: Andy has no savings and will not be paid for another 2 weeks. Andy would like to
purchase an HD television and watch tomorrow’s football final.
Scenario 2: In September, Lena spots on special a home theatre system which she would like to
purchase for her family for Christmas.

TOPIC 1 Financial mathematics 7

 11. Merchant banks offer simple interest on all investments. Merchant bank A had an investor invest $10 000 for
5 years. Merchant bank B had a different investor invest $15 000 for 3 years.
Investor B obtained $2500 more in interest than investor A because the rate of interest per annum she
received was 6% greater than the interest obtained by investor A.
Calculate the simple interest and rate of interest for each investor.
12. Compare the following two investments where simple interest is paid.

$8000
Rate Principal Time Interest

$7000
Investment A rA 4 years SIA
Investment B rB 5 years SIB

It is known that rA ∶ rB = 2 ∶ 3 and that investment B earned $2000 more interest than investment A.
Determine the values of rA , rB , SIA and SIB . Give your answers correct to 2 decimal places.
(Use unrounded calculations to determine subsequent values.)
13. What can you do to remember the simple interest formula?

LESSON
1.3 Buying on terms
LEARNING INTENTION
At the end of this lesson you should be able to:
• understand the concept of buying on terms
• calculate the total cost of buying an item on terms
• apply concepts of buying on terms to small loans to purchase items.

1.3.1 Buying on terms

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• When a customer buys an item on terms:
– the customer pays a deposit
– the customer pays off the balance over an agreed period of time with set payments
– the set payments may be calculated as a stated arbitrary amount or interest rate
– the total monies paid will exceed the initial cash price.

WORKED EXAMPLE 3 Calculating total costs

The cash price of a computer is $2400. It can also be purchased on the following terms: 25% deposit
and payments of $16.73 per week for 3 years.
Calculate the total cost of the computer purchased on terms as described.

Deposit = 25% of $2400

THINK WRITE

= 0.25 × $2400
1. Calculate the deposit.

= $600

8 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

 Total repayment = $16.73 × 52 × 3
= $2609.88
2. Calculate the total of the weekly repayments.

Total cost = $600 + $2609.88

= $3209.88
3. Add these two amounts together to calculate the
total cost.

WORKED EXAMPLE 4 Calculating repayments

A diamond engagement ring has a purchase price of $2500. Michael

buys the ring on the following terms: 10% deposit with the balance
plus simple interest paid monthly at 12% p.a. over 3 years.
a. Calculate the amount of the deposit.
b. Determine the balance owing after the initial deposit.
c. Calculate the interest payable.
d. Determine the total amount to be repaid.
e. Calculate the amount of each monthly repayment.

a. Calculate the deposit by finding 10% of $2500. a. Deposit = 10% of $2500

THINK WRITE

= 0.1 × $2500
= $250

b. Balance = $2500 − $250

= $2250
b. Determine the balance owing by subtracting the

c. Calculate the simple interest on $2250 at c. I = Prn,

deposit from the purchase price.

where P = $2250, r = 0.12, n = 3

I = 2250 × 0.12 × 3
12% p.a. for 3 years.

= $810
d. Total repayment = $2250 + $810
= $3060
d. Determine the total repayment by adding the
balance owing with the interest payable.

e. Calculate the monthly repayment by dividing the e. Monthly repayment = $3060 ÷ 36

total repayment by the number of months over = $85
which the ring is to be repaid.

Loans
• Money can be borrowed from a bank or other financial institutions.
• Interest is charged on the amount of money borrowed.
• Both the money borrowed and the interest charged must be paid back.
• The interest rate on a loan is generally lower than the interest rate offered on a credit card or when buying
on terms.
• The calculation of loan payments is done in the same way as for buying on terms; that is, calculate the
interest and add it to the principal before dividing into equal monthly repayments.

TOPIC 1 Financial mathematics 9

 DISCUSSION: BUY NOW, PAY LATER
Many large department stores offer white
goods and furniture on plans described in
terms such as, “Take the product home
today and don’t pay anything for two
years” For many people this is a very
tempting offer, as it means they can have
the goods they need and defer payment
until they have the money.
Working in small groups, use the internet
to investigate one of these plans and find
out what happens if the customer is unable
to pay at the end of the interest-free period.
Prepare a report to present to the class.

Exercise 1.3 Buying on terms

1.3 Quick quiz 1.3 Exercise

Individual pathways
PRACTISE CONSOLIDATE MASTER
1, 2, 4, 8, 10, 12 3, 5, 6, 7, 11, 13 9, 14, 15, 16, 17, 18

Fluency
1. Calculate the total cost of a $3000 purchase given the terms described below.
a. i. 12% deposit and monthly payments of $60 over 5 years.
ii. 20% deposit and weekly payments of $20 over 3 years.
iii. 15% deposit and annual payments of $700 over 5 years.
b. Which of these options is the best deal for a purchaser?

2. Calculate the amount of each repayment for a $5000 purchase given the terms described below.
a. 10% deposit with the balance plus simple interest paid monthly at 15% p.a. over 5 years.
b. 10% deposit with the balance plus simple interest paid fortnightly at 12% p.a. over 5 years.
c. 20% deposit with the balance plus simple interest paid monthly at 10% p.a. over 3 years.

$10 000 at 9% p.a. repaid over 4 years.

3. Calculate the total repayment and the amount of each monthly repayment for each of the following loans.

$25 000 at 12% p.a. repaid over 5 years.

a.

$4500 at 7.5% p.a. repaid over 18 months.

b.

$50 000 at 6% p.a. repaid over 10 years.

c.

$200 000 at 7.2% p.a. repaid over 20 years.

d.
e.

10 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

4. WE3 The cash price of a bedroom suite is $4200. The

20% deposit and weekly repayments of $43.94 for 2 years.

bedroom suite can be purchased on the following terms:

Calculate the total cost of the bedroom suite if you buy it

on terms.

5. Guy purchases a computer that has a cash price of $3750 on

the following terms: $500 deposit with the balance plus interest
paid over 2 years at $167.92 per month.

6. Dmitry wants to buy a used car with a cash price of $12 600.
What is the total amount that Guy pays for the computer?

repayments of $812.70 for 2 years.

The dealer offers terms of 10% deposit and monthly

a. Calculate the amount of the deposit.

b. Calculate the total amount to be paid in monthly repayments.
c. What is the total amount Dmitry pays for the car if he buys
it on terms?
d. How much more than the cash price of the car does Dmitry
pay? (This is the interest charged by the dealer.)
7. Alja wants to purchase an entertainment system that has a cash price of $5800. She purchases the
entertainment system on terms of no deposit and monthly repayments of $233.61 for 3 years.
a. Calculate the total amount that Alja pays for the entertainment system.
b. Calculate the amount that Alja pays in interest.
c. Calculate the amount of interest that Alja pays each year.
d. Calculate this amount as a percentage of the cash price of the entertainment system.

Understanding
8. WE4 A used car has a purchase price of $9500. Dayna buys the car on the following terms: 25% deposit
with balance plus interest paid at 12% p.a. over 3 years.
a. Calculate the amount of the deposit.
b. What is the balance owing?
c. Calculate the interest payable.
d. What is the total amount to be repaid?
e. Determine the amount of each monthly repayment.
9. A department store offers the following terms: one-third deposit with the balance plus interest paid in equal,

ticketed price of $6000.

monthly instalments over 18 months. The interest rate charged is 9% p.a. Ming buys a lounge suite with a

a. Calculate the amount of the deposit.

b. What is the balance owing?
c. Calculate the interest payable.
d. What is the total amount to be repaid?
e. Determine the amount of each monthly repayment.

TOPIC 1 Financial mathematics 11

10. Calculate the monthly payment on each of the following items bought on terms. (Hint: Use the steps shown

a. Dining suite: cash price $2700, deposit 10%, interest rate 12% p.a., term 1 year.
in question 8.)

b. Smartphone: cash price $990, deposit 20%, interest rate 15% p.a., term 6 months.
c. Car: cash price $16 500, deposit 25%, interest rate 15% p.a., term 5 years.

d. Mountain bike: cash price $3200, one-third deposit, interest rate 9% p.a., term 2
1
years.
e. Watch: cash price $675, no deposit, interest rate 18% p.a., term 9 months.
2

11. Samir wants to purchase his first car. He has saved $1000 as a deposit but the cost of the car is $5000. Samir
takes out a loan from the bank to cover the balance of the car plus $600 worth of on-road costs.
a. How much will Samir need to borrow from the bank?
b. Samir takes the loan out over 4 years at 9% p.a. interest. How much interest will Samir need to pay?
c. What will be the amount of each monthly payment that Samir makes?
d. What is the total cost of the car after paying off the loan, including the on-road costs? Give your answer
to the nearest dollar.

Communicating, reasoning and problem solving

12. MC Kelly wants to borrow $12 000 for some home improvements. Which of the following loans will lead to
Kelly making the lowest total repayment?
A. Interest rate 6% p.a. over 4 years B. Interest rate 7% p.a. over 3 years
C. Interest rate 5.5% p.a. over 3 years D. Interest rate 6.5% p.a. over 5 years

13. MC Without completing any calculations, explain which of the following loans will be the best value for

the borrower.
A. Interest rate 8.2% p.a. over 5 years B. Interest rate 8.2% over 4 years
C. Interest rate 8% over 5 years D. Interest rate 8% over 4 years

14. Explain how, when purchasing an item, making a deposit using existing savings and taking out a loan for the
balance can be an advantage.
15. Gavin borrows $18 000 over 5 years from the bank. The loan is charged at 8.4% p.a. flat rate interest. The
loan is to be repaid in equal monthly instalments. Calculate the amount of each monthly repayment.
16. Andrew purchased a new car valued at $32 000. He paid a
10% deposit and was told that he could have 4 years to pay off
the balance of the car price plus interest.
An alternative scheme was also offered to him. It involved

If he chose the latter scheme, he would end up paying $19 584

paying off the balance of the car price plus interest in 8 years.

more. The interest rate for the 8-year scheme was 1% more
than for the 4-year scheme.
a. How much deposit did he pay?
b. What was the balance to be paid on the car?
c. Determine the interest rate for each of the two schemes.
d. Determine the total amount paid for the car for each of the schemes.
e. What were the monthly repayments for each of the schemes?
17. When buying on terms, what arrangements are the most beneficial to the buyer?

18. Ingrid offered to pay her brother $2 for doing her share of the housework each day, but fined him $5 if he
forgot to do it. After 4 weeks, Ingrid discovered that she did not owe her brother any money.
For how many days did Ingrid’s brother do her share of the housework?

12 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

 LESSON
1.4 Compound interest
LEARNING INTENTION
At the end of this lesson you should be able to:
• calculate the final amount received on an investment with compound interest
• calculate the interest earned on an investment
• apply the compound interest formula to determine the time, the rate or the present value of
an investment.

1.4.1 Compound interest

eles-6251
• Interest on the principal in a savings account or a short-term or long-term deposit is generally calculated
using compound interest rather than simple interest.
• Compound interest is when interest is added to the principal at regular intervals, increasing the balance of
the account, and each successive interest payment is calculated on the new balance.
• Compound interest can be calculated by calculating simple interest one period at a time.
• The amount to which the initial investment grows is called the compounded value or future value (FV).

WORKED EXAMPLE 5 Calculating the future value using simple interest

Kyna invests $8000 at 8% p.a. for 3 years with interest paid at the end of each year. Calculate the
compounded value of the investment by calculating the simple interest on each year separately.

Initial principal = $8000

THINK WRITE
1. Write the initial (first year) principal.

Interest for year 1 = 8% of $8000

= $640
2. Calculate the interest for the first year.

Principal for year 2 = $8000 + $640

= $8640
3. Calculate the principal for the second
year by adding the first year’s interest to
the initial principal.
Interest for year 2 = 8% of $8640
= $691.20
4. Calculate the interest for the second year.

Principal for year 3 = $8640 + $691.20

= $9331.20
5. Calculate the principal for the third year
by adding the second year’s interest to the
second year’s principal.
Interest for year 3 = 8% of $9331.20
= $746.50
6. Calculate the interest for the third year.

Compounded value after 3 years = $9331.20 + $746.50

= $10 077.70
7. Calculate the future value of the investment
by adding the third year’s interest to the
third year’s principal.

TOPIC 1 Financial mathematics 13

 • To calculate the actual amount of interest received, we subtract the initial principal or the present value
(PV ) from the future value.
• In the example above:

compound interest = $10 077.70 − $8000

= $2077.70

• We can compare this with the simple interest earned at the same rate.

I = Prn
= 800 × 0.08 × 3
= $1920
• The table below shows a comparison between the total interest earned on an investment of $8000 earning
8% p.a. at both simple interest (I) and compound interest (CI) over an 8-year period.

$640.00 $1280.00 $1920.00 $2560.00 $3200.00 $3840.00 $4480.00 $5120.00

YEAR 1 2 3 4 5 6 7 8

$640.00 $1331.20 $2077.70 $2883.91 $3754.62 $4694.99 $5710.59 $6807.44

Total (I)
Total (CI)

1.4.2 Using the compound interest formula

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• We can develop a formula for the future value of an investment rather than repeated use of simple interest.

After 1 year, A1 = 8000 × 1.08 (increasing $8000 by 8%)

Consider Worked example 5. Let the compounded value after year n be An .

After 2 years, A2 = A1 × 1.08

= 8000 × 1.08 × 1.08 (substituting the value of A1 )
= 8000 × 1.082
After 3 years, A3 = A2 × 1.08
= 8000 × 1.082 × 1.08 (substituting the value of A2 )
= 8000 × 1.083

$8000 × 1.08n .
• The pattern then continues such that the value of the investment after n years equals

• This can be generalised for any investment:

Formula for compound interest

FV = PV(1 + r)n

• FV = future value of the investment

where:

• PV = present value of the investment

• r = interest rate per time period (or compounding period), expressed

• n = number of time periods

as a decimal

14 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

 • To calculate the amount of compound interest (CI) we then use the formula

Amount of compound interest

Compound interest = FV − PV

• FV = future value of the investment

where:

• PV = present value of the investment

1.4.3 Using technology

eles-6253
• Digital technologies, such as spreadsheets, can be used to draw graphs in order to compare interest accrued
through simple interest and compound interest.
Comparison of $8000 invested at 8% p.a. simple
and compound interest
16 000.00

14 000.00

12 000.00

10 000.00
Amount ($)

Amount after simple

interest ($)
8000.00
Amount after compound
6000.00 interest ($)

4000.00

2000.00

0.00
0 1 2 3 4 5 6 7 8
Year

WORKED EXAMPLE 6 Calculating future value of an investment

William has $14 000 to invest. He invests the money at 9% p.a. for 5 years with interest

a. Use the formula FV = PV(1 + r) to calculate the amount to which this investment will grow.
compounded annually.
n

b. Calculate the compound interest earned on the investment.

a. FV = PV(1 + r)
THINK WRITE

PV = $14 000, r = 0.09, n = 5

n
a. 1. Write the compound interest formula.

FV = 14 000 × 1.095
2. Write the values of PV (Present Value), r and n.

= 21 540.74
3. Substitute the values into the formula.

The investment will grow to $21 540.74.

4. Calculate the amount.

b. Compound interest = FV − PV
= 21 540.74 − 14 000
b. Calculate the compound interest earned.

= 7540.74
The compound interest earned is $7540.74.

TOPIC 1 Financial mathematics 15

 1.4.4 Comparison of fixed principal at various interest rates over a
eles-6254
period of time
• It is often helpful to compare the future value (FV) of the principal or present value (PV ) at different
compounding interest rates over a fixed period of time.

spreadsheet, shows the comparisons for $14 000 invested for 5 years at 7%, 8%, 9% and 10%
• Spreadsheets are very useful tools for making comparisons. The graph shown, generated from a

compounding annually.
• There is a significant difference in the future value depending on which interest rate is applied.

$14 000 invested at 7%, 8%, 9% and 10% p.a. over 5 years
23 000
22 000
21 000
20 000 Amount after CI @ 7% p.a. ($)
Amount ($)

19 000 Amount after CI @ 8% p.a. ($)

18 000 Amount after CI @ 9% p.a. ($)
17 000 Amount after CI @ 10% p.a. ($)
16 000
15 000
14 000
0 1 2 3 4 5
Year

COMMUNICATING — COLLABORATIVE TASK: COMPARING INTEREST RATES

Use a spreadsheet to graph and compare the value of an investment of $20 000 at interest rates of
5%, 6%, 7% and 8% for 8 years, compounding monthly.

1.4.5 Compounding period

eles-6255
• In Worked example 6, interest is paid annually.
• Interest can be paid more regularly — it may be paid 6-monthly (twice a year), quarterly (4 times a year),
monthly or even daily. This is called the compounding period.
• The time and interest rate on an investment must reflect the compounding period. For example, an
investment over 5 years at 6% p.a. compounding quarterly will have:

n = 20 (4 times each year for 5 years, 4 × 5)

r = 1.5% (6% divided by 4)

Compounding period
To calculate n:
n = number of years × compounding periods per year
To calculate r:
r = interest rate per annum ÷ compounding periods per year

16 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

 WORKED EXAMPLE 7 Calculating FV with interest compounded quarterly

Calculate the future value of an investment of $4000 at 6% p.a. for 2 years with interest
compounded quarterly.

FV = PV(1 + r)n
THINK WRITE

PV = $4000, r = 0.015, n = 8
1. Write the compound interest formula.

FV = 4000 × 1.0158
2. Write the values of PV, r and n.

= $4505.97
3. Substitute the values into the formula.

The future value of the investment is $4505.97.

4. Calculate the future value.

eles-6256
1.4.6 Guess and refine
• Sometimes, it is useful to know approximately how long it will take to reach a particular future value once
an investment has been made.
• Mathematical formulas can be applied to determine when a particular future value will be reached. In this

For example, to determine the number of years required for an investment of $1800 at 9% compounded
section, a ‘guess and refine’ method will be shown.

quarterly to reach a future value of $2500, the following method can be used.
• Let n = the number of compounding periods (quarters) and FV = the future value in $.
Therefore, it will take approximately 15 quarters, or 3 years and 9 months, to reach the desired amount.

FV = PV(1 + r)n
$1840.50
n Comment

amount is quite far from $2500.

1 It is useful to know how the principal is growing after 1 quarter, but the

3 $1924.25 The amount is closer to $2500 but still a long way off, so jump to a

$2248.57 The amount is much closer to $2500.

higher value for n.

$2350.89 The amount is much closer to $2500.

10

$2457.87 The amount is just below $2500.

12

$2513.17 The amount is just over $2500.

14
15

Resources
Resourceseses
Interactivities Compound interest (int-2791)
Compounding periods (int-6186)

TOPIC 1 Financial mathematics 17

Exercise 1.4 Compound interest
1.4 Quick quiz 1.4 Exercise

Individual pathways
PRACTISE CONSOLIDATE MASTER
1, 2, 3, 4, 5, 6, 10, 11, 16 7, 8, 9, 12, 13, 15, 17, 20 14, 18, 19, 21, 22

Fluency
1. Use the formula FV = PV(1 + r)n to calculate the amount to which each of the following investments will

a. $3000 at 4% p.a. for 2 years. b. $9000 at 5% p.a. for 4 years.

grow with interest compounded annually.

c. $16 000 at 9% p.a. for 5 years. d. $12 500 at 5.5% p.a. for 3 years.
e. $9750 at 7.25% p.a. for 6 years. f. $100 000 at 3.75% p.a. for 7 years.

a. $870 for 2 years at 3.50% p.a. with interest compounded 6-monthly.

2. Calculate the compounded value of each of the following investments.

b. $9500 for 2
1
years at 4.6% p.a. with interest compounded quarterly.

c. $148 000 for 3 years at 9.2% p.a. with interest compounded 6-monthly.
2
1

d. $16 000 for 6 years at 8% p.a. with interest compounded monthly.

2

e. $130 000 for 25 years at 12.95% p.a. with interest compounded quarterly.

3. WE5 Danielle invests $6000 at 10% p.a. for 4 years with

interest paid at the end of each year. Calculate the compounded

value of the investment by calculating the simple interest on
each year separately.
4. Ben is to invest $13 000 for 3 years at 8% p.a. with interest
paid annually. Determine the amount of interest earned by
calculating the simple interest for each year separately.
Year 1 2 3 Total
Simple Interest

5. WE6 Simon has $2000 to invest. He invests the money at 6%

a. Use the formula FV = PV(1 + r)n to calculate the amount to

p.a. for 6 years with interest compounded annually.

which this investment will grow.

b. Calculate the compound interest earned on the investment.

6. WE7 Calculate the future value of an investment of $14 000 at 7% p.a. for 3 years with interest
compounded quarterly.
7. A passbook savings account pays interest of 0.3% p.a. Jill has $600 in such an account. Calculate the amount
in Jill’s account after 3 years, if interest is compounded quarterly.

18 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

Understanding
8. Damien is to invest $35 000 at 7.2% p.a. for 6 years with interest compounded 6-monthly. Calculate the
compound interest earned on the investment. If the account compounded annually, how much less interest
would Damien’s investment have earned?
9. Sam invests $40 000 in a 1-year fixed deposit at an interest rate of 7% p.a. with interest
compounding monthly.
a. Convert the interest rate of 7% p.a. to a rate per month.
b. Calculate the value of the investment upon maturity.

10. MC A sum of $7000 is invested for 3 years at the rate of 5.75% p.a., compounded quarterly. The interest

A. $1208 B. $1308 C. $8208 D. $8308

paid on this investment, to the nearest dollar, is:

Mr and Mrs Fong have $73 600. They plan to invest it at 7%

11. MC After selling their house and paying off their mortgage,

investment will first exceed $110 000 after:

p.a. with interest compounded annually. The value of their

A. 5 years
B. 6 years
C. 8 years

MC Maureen wishes to invest $15 000 for a period of 7 years.

D. 10 years
12.
The following investment alternatives are suggested to her.
The best investment would be:
A. simple interest at 8% p.a.
B. compound interest at 6.7% p.a. with interest compounded annually
C. compound interest at 6.6% p.a. with interest compounded 6-monthly
D. compound interest at 6.5% p.a. with interest compounded quarterly

following investments will have a future value closest to $10 000?

13. MC An amount is to be invested for 5 years and compounded semi-annually at 7% p.a. Which of the

A. $700 B. $6500 C. $7400 D. $9000

14. Jake invests $120 000 at 9% p.a. for a 1-year term. For such large investments, interest is compounded daily.
a. Calculate the daily percentage interest rate, correct to 4 decimal places. Use 1 year = 365 days.
b. Hence, calculate the compounded value of Jake’s investment on maturity.
c. Calculate the amount of interest paid on this investment.
d. Calculate the extra amount of interest earned compared with the case where the interest is calculated only
at the end of the year.

Communicating, reasoning and problem solving

15. Daniel has $15 500 to invest. An investment over a 2-year term will pay interest of 7% p.a.
a. Calculate the compounded value of Daniel’s investment if the compounding period is:
i. 1 year ii. 6 months iii. 3 months iv. 1 month.
b. Explain why it is advantageous to have interest compounded on a more frequent basis.

TOPIC 1 Financial mathematics 19

16. Jasmine invests $6000 for 4 years at 8% p.a. simple interest. David also invests $6000 for 4 years, but his
interest rate is 7.6% p.a. with interest compounded quarterly.
a. Calculate the value of Jasmine’s investment on maturity.
b. Show that the compounded value of David’s investment is greater than Jasmine’s investment.
c. Explain why David’s investment is worth more than Jasmine’s investment despite receiving a lower rate
of interest.
17. Quan has $20 000 to invest over the next 3 years. He has the choice of investing his money at 6.25% p.a.
simple interest or 6% p.a. compound interest.
a. Calculate the amount of interest that Quan will earn if he selects the simple interest option.
b. Calculate the amount of interest that Quan will earn if the interest is compounded:
i. annually ii. 6-monthly iii. quarterly.

c. Clearly, Quan’s decision will depend on the compounding period. Under what conditions should Quan

d. Consider an investment of $10 000 at 8% p.a. simple interest over 5 years. Use a trial-and-error method to
accept the lower interest rate on the compound interest investment?

determine an equivalent rate of compound interest over the same period.

e. Will this equivalent rate be the same if we change:
i. the amount of the investment
ii. the period of the investment?

18. A building society advertises investment accounts at the following rates.

Account 1: 3.875% p.a. compounding daily
Account 2: 3.895% p.a. compounding monthly
Account 3: 3.9% p.a. compounding quarterly
Peter thinks the first account is the best one because the interest is calculated more frequently. Paul thinks
the last account is the best one because it has the highest interest rate.
Explain whether either is correct.
19. Two banks offer the following investment packages.
Bankwest: 7.5% p.a. compounded annually, fixed for 7 years.
Bankeast: 5.8% p.a. compounded annually, fixed for 9 years.

b. If a customer invests $20 000 with Bankwest, how much

a. Which bank’s package will yield the greater interest?

would she have to invest with Bankeast to produce the same

amount as Bankwest at the end of the investment period?
20. How is compound interest calculated differently to
simple interest?
21. How long will it take for a sum of money to double if it is
invested at a rate of 15% p.a. compounded monthly?

22. The kangaroo population in a region is 520 and each year increases by 4.5% of the previous year’s
population. Determine the expected population in 15 years time.

20 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

 LESSON
1.5 Depreciation
LEARNING INTENTION
At the end of this lesson you should be able to:
• calculate the final value of an item when depreciated at a given rate
• calculate the amount of depreciation over a period of time
• apply the depreciation formula to determine the time, the rate or the present value of an asset.

1.5.1 Depreciation
eles-6257

that is purchased new for $45 000 will be worth less than that amount 1 year later and less again each year.
• Depreciation is the reduction in the value of an item as it ages over a period of time. For example, a car

• Depreciation is usually calculated as a percentage of the yearly value of the item.

• To calculate the depreciated value, or the salvage value, of an item, use the depreciation formula

Formula for depreciation

S = V0 (1 − r)n

• S = salvage value of the asset

where:

• V0 = initial value of the asset

• r = depreciation rate per time period, expressed as a decimal
• n = number of time periods

• This formula is almost the same as the compound interest formula except that it subtracts a percentage of
the value each year instead of adding.
• In many cases, depreciation can be a tax deduction.
• When the value of an item falls below a certain value, it is said to be written off. That is to say, for tax
purposes, the item is considered to be worthless.
• Trial-and-error methods can be used to calculate the length of time that the item will take to reduce to
this value.

WORKED EXAMPLE 8 Calculating the salvage value

A farmer purchases a tractor for $115 000. The value of

the tractor depreciates by 12% p.a. Calculate the value of the
tractor after 5 years.

TOPIC 1 Financial mathematics 21

 S = V0 (1 − r)n
THINK WRITE

V0 = $115 000, r = 0.12, n = 5

1. Write the depreciation formula.

S = 115 000 × (1 − 0.12)5

2. Write the values of V0 , r and n.

= 115 000 × (0.88)5

3. Substitute the values into the formula.

= $60 689.17
The value of the tractor after 5 years is $60 689.17.
4. Calculate the value of the tractor.

WORKED EXAMPLE 9 Calculating time using trial and error

A truck driver buys a new prime mover for $500 000. The prime mover depreciates at the rate of 15%
p.a. and is written off when its value falls below $100 000. How long will it take for the prime mover to
be written off?

1 Make an estimate of, say, n = 5. Use the Consider n = 5.

THINK WRITE

S = V0 (1 − r)n
= 500 000 × (0.85)5
depreciation formula to calculate the value

= $221 852.66
of the prime mover after 5 years.

Consider n = 10.
than $100 000, try a larger estimate, say, S = V0 (1 − r)n
2 Since the value will still be greater

n = 10. = 500 000 × (0.85)10

= $98 437.20

3 As the value is below $100 000, check n = 9. Consider n = 9.

S = V0 (1 − r)n
= 500 000 × (0.85)9
= $115 808.47

4 Since n = 10 is the first time that the value falls The prime mover will be written off in 10 years.
below $100 000, conclude that it takes 10 years
to be written off.

Resources
Resourceseses
Interactivities Different rates of depreciation (int-1155)
Video eLesson What is depreciation? (eles-0182)

22 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

Exercise 1.5 Depreciation
1.5 Quick quiz 1.5 Exercise

Individual pathways
PRACTISE CONSOLIDATE MASTER
1, 2, 7, 9 3, 5, 6, 8, 11, 12, 14 4, 10, 13, 15, 16, 17, 18

Fluency

a. Initial value of $30 000 depreciating at 16% p.a. over 4 years.

1. Calculate the depreciated value of an item for the initial values, depreciation rates and times given below.

b. Initial value of $5 000 depreciating at 10.5% p.a. over 3 years.

c. Initial value of $12 500 depreciating at 12% p.a. over 5 years.

2. WE8 A laundromat installs washing machines and clothes dryers to the value of $54 000. If the value of the

equipment depreciates at a rate of 20% p.a., calculate the value of the equipment after 5 years.
3. A drycleaner purchases a new machine for $38 400. The machine depreciates at 16% p.a.
a. Calculate the value of the machine after 4 years.
b. Calculate the amount by which the machine has depreciated over this period of time.

4. A tradesman values his new tools at $10 200. For tax purposes, their value depreciates at a rate of 15% p.a.
a. Calculate the value of the tools after 6 years.
b. Calculate the amount by which the value of the tools has depreciated over these 6 years.
c. Calculate the percentage of the initial value that the tools are worth after 6 years.

5. A taxi is purchased for $52 500 with its value depreciating at

18% p.a.
a. Determine the value of the taxi after 10 years.
b. Calculate the accumulated depreciation over this period.

Printing presses are purchased new for $2.4 million.

6. A printer depreciates the value of its printing presses by 25% p.a.

What is the value of the printing presses after:

a. 1 year b. 5 years c. 10 years?

Understanding
7. MC A new computer workstation costs $5490.

A. $1684 B. $2225 C. $2811 D. $3082

With its value depreciating at 26% p.a., the workstation’s value at the end of the third year will be close to:

8. MC The value of a new photocopier is $8894. Its value depreciates by 26% in the first year, 21% in the

second year and 16% p.a. in the remaining 7 years. The value of the photocopier after this time, to the

A. $1534 B. $1851 C. $2624 D. $3000

nearest dollar, is:

9. MC A company was purchased 8 years ago for $2.6 million. With a depreciation rate of 12% p.a., the total

A. $0.6 million B. $1.0 million C. $1.7 million D. $2.0 million

amount by which the company has depreciated is closest to:

TOPIC 1 Financial mathematics 23

10. MC Equipment is purchased by a company and is depreciated at the rate of 14% p.a. The number of years

that it will take for the equipment to reduce to half of its initial value is:
A. 4 years B. 5 years C. 6 years D. 7 years
MC An asset that was bought for $12 300 has a value of

$6920 after 5 years. The depreciation rate is close to:

11.

A. 10.87% B. 16.76% C. 18.67% D. 21.33%

The aeroplane costs $900 000. The aeroplane depreciates

12. WE9 A farmer buys a light aeroplane for crop dusting.

falls below $150 000.

at the rate of 18% p.a. and is written off when its value

How long will it take for the aeroplane to be written off?

Give your answer in whole years.

13. A commercial airline buys a jumbo jet for $750 million. The value of this aircraft depreciates at a rate
of 12.5% p.a.

b. How many years will it take for the value of the jumbo jet to fall below $100 million?
a. Calculate the value of the plane after 5 years, correct to the nearest million dollars.

Communicating, reasoning and problem solving

14. A machine purchased for $48 000 will have a value of $3000 in 9 years.

b. Consider the equation x = an , a = n x. Verify your answer to part a using this relationship.
a. Use a trial-and-error method to determine
√ the rate at which the machine is depreciating per annum.

15. Camera equipment purchased for $150 000 will have a value of $9000 in 5 years.

relationship ‘if x = an , then a = n x ’.

a. Determine the rate of annual depreciation
√ using trial and error first and then algebraically with the

b. Compare and contrast each method.

16. The value of a new tractor is $175 000. The value of the
tractor depreciates by 22.5% p.a.
a. Determine the value of the tractor after 8 years.
b. What percentage of its initial value is the tractor worth
after 8 years?
17. Anthony has a home theatre valued at $P. The value of
the home theatre depreciates by r% annually over a period
of 5 years.

has been reduced by $ . Determine the value of r

At the end of the 5 years, the value of the home theatre
P
12
correct to 3 decimal places.

18. How and why is the formula for depreciation different to

compound interest?

24 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

LESSON
1.6 Review
1.6.1 Topic summary

Simple interest Buying on terms

The simple interest formula is I = Prn, where When we buy an item on terms, we usually pay
P = principal, r = interest rate per annum, as a a deposit with the balance plus interest paid in
decimal, and n = duration of the investment in years. weekly or monthly instalments over an agreed
There are alternatives to consider when deciding on period of time.
how to pay for a major purchase. To calculate the total cost of a purchase,
Credit card companies calculate interest on a monthly add the deposit to the total of the regular
basis. repayments.
The amount of each repayment is found by
following these steps:
1. Calculate the deposit.
2. Calculate the balance owing by subtracting
the deposit from the cash price.
3. Determine the total repayments by adding
the interest to the balance owing.
4. Divide the total amount to be repaid by the
number of regular repayments that must be
made.
Loan repayments may be calculated in the
same way, except that no deposit is made.

FINANCIAL MATHEMATICS

Compound
Compoundinterest
interest Depreciation
The future value of an investment under compound Depreciation is the reducing value of a major
interest can be found by calculating the simple asset over time.
interest for each year separately. Depreciation is usually calculated as a
The compound interest formula is percentage of the yearly value of the item.
FV = PV(1 + r)n The depreciation formula is
where FV is the future value of the investment, PV is S = V0 (1 – r)n
the present value of the investment. where S is the depreciated value of the item,
or salvage value, V0 is the initial value of the
• In the formula, n is the number of compounding
asset, r is the depreciation rate per time
periods over the term of the investment: n = number
period, expressed as a decimal and n is the
of years × compounding periods per year.
number of time periods.
• In the formula, r is the interest rate (as a decimal)
per compounding period: r = interest rate per
annum ÷ compounding periods per year.
The amount of compound interest earned is then
calculated using the formula:
Compound Interest = FV – PV

TOPIC 1 Financial mathematics 25

1.6.2 Project
Consumer price index
The Consumer Price Index (CPI) measures price
movements in Australia. Let’s investigate this further to
gain an understanding of how this index is calculated.
A collection of goods and services is selected as
representative of a high proportion of household
expenditure. The prices of these goods are recorded
each quarter. The collection on which the CPI
is based is divided into eight groups, which are
further divided into subgroups. The groups are food,
clothing, tobacco/alcohol, housing, health/personal
care, household equipment, transportation, and
recreation/education.
Weights are attached to each of these subgroups to
reflect the importance of each in relation to the total
household expenditure. The table shows the weights of
the eight groups.
The weights indicate that a typical Australian household spends 19% of its income on food purchases, 7%
on clothing and so on. The CPI is regarded as an indication of the cost of living as it records changes in the
level of retail prices from one period to another.

CPI group Weight (% of total)

Food 19
Clothing 7
Tobacco/alcohol 8.2
Housing 14.1
Health/personal care 5.6
Household equipment 18.3
Transportation 17
Recreation/education 10.8

between one period and another. Take three items with prices as follows: a pair of jeans costing $75, a
Consider a simplified example showing how this CPI is calculated and how we are able to compare prices

hamburger costing $3.90 and a CD costing $25.

Let us say that during the next period of time, the jeans sell for $76, the hamburger for $4.20 and the CD for
$29. This can be summarised in the following table.

W×P W×P
Period 1 Period 2

$75.00
Item Weight (W) Price (P) Price (P)

$3.90
Jeans 7 525

$25.00
Hamburger 19 74.1
CD 10.8 270
Total 869.1

26 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

In order to calculate the CPI for Period 2, we regard the first period as the base and allocate it an index
number of 100 (it is classed as 100%). We compare the second period with the first by expressing it as a
percentage of the first period.

CPI = × 100%
weighted expenditure for Period 2
weighted expenditure for Period 1

1. Complete the table to determine the total weighted price for Period 2.
2. a. Calculate the CPI for the above example, correct to 1 decimal place.
b. This figure is over 100%. The amount over 100% is known as the inflation factor. What is the inflation
factor in this case?
3. Now apply this procedure to a more varied basket of goods. Complete the following table, then calculate
the CPI and inflation factor for the second period.

W×P W×P
Period 1 Period 2

$4.80 $4.95
Item Weight (W) Price (P) Price (P)

$220.00 $240.00
Bus fare

$10.50 $10.80
Rent

$1200.00 $1240.00
Movie ticket

$18.50 $21.40
Air conditioner

$2.95 $3.20
Haircut

$32.40 $35.00
Bread

$19.95 $21.00
Shirt
Bottle of scotch
Total

Resources
Resourceseses
Digital Document Investigation — Consumer price index (doc-15944)
Interactivities Crossword (int-2869)
Sudoku (int-3602)

TOPIC 1 Financial mathematics 27

Exercise 1.6 Review questions

Fluency
1. Calculate the simple interest that is earned on $5000 at 5% p.a. for 4 years.

2. MC Jim invests a sum of money at 9% p.a. Which one of the following statements is true?
A. Simple interest will earn Jim more money than if compound interest is paid annually.
B. Jim will earn more money if interest is compounded annually rather than monthly.
C. Jim will earn more money if interest is compounded quarterly rather than 6-monthly.
D. Jim will earn more money if interest is compounded annually rather than 6-monthly.

3. Benito has a credit card with an outstanding balance of $3600. The interest rate charged on the loan
is 18% p.a. Calculate the amount of interest that Benito will be charged on the credit card for the
next month.

4. An LCD television has a cash price of $5750. It can be purchased on terms of 20% deposit plus weekly
repayments of $42.75 for 3 years. Calculate the total cost of the television if it is purchased on terms.

5. Erin purchases a new entertainment unit that has a cash price of $6400. Erin buys the unit on the
following terms: 10% deposit with the balance plus interest to be repaid in equal monthly repayments
over 4 years. The simple interest rate charged is 12% p.a.
a. Calculate the amount of the deposit.
b. Calculate the balance owing after the deposit has been paid.
c. Calculate the interest that will be charged.
d. What is the total amount that Erin has to repay?
e. Calculate the amount of each monthly repayment.

6. A new car has a marked price of $40 000. The car can be purchased on terms of 10% deposit and
monthly repayments of $1050 for 5 years.
a. Determine the total cost of the car if it is purchased on terms.
b. Calculate the amount of interest paid.
c. Calculate the amount of interest paid per year.
d. Calculate the interest rate charged.

Understanding
7. Ryan invests $12 500 for 3 years at 8% p.a. with interest paid annually. By calculating the amount of
simple interest earned each year separately, determine the amount to which the investment will grow.

8. Calculate the compound interest earned on $45 000 at 12% p.a. over 4 years if interest is compounded:
a. annually b. 6-monthly c. quarterly d. monthly.

9. MC A new computer server costs $7290. With 22% p.a. reducing-value depreciation, the server’s value

A. $1486 B. $2257 C. $2721 D. $3460

at the end of the third year will be closest to:

10. MC An asset that was bought for $34 100 has a value of $13 430 after 5 years. The depreciation rate is

closest to:
A. 11% B. 17% C. 18% D. 21%

28 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

 purchased for $55 000.
11. The value of a new car depreciates by 15% p.a. Calculate the value of the car after 5 years if it was

Communicating, reasoning and problem solving

12. Virgin Australia buys a new plane so that extra flights can be arranged between Sydney, Australia and
Wellington, New Zealand.

The plane costs $1 200 000. It depreciates at a rate of 16.5% p.a. and is written off when its value falls
below $150 000. How long can Virgin Australia use this plane before it is written off?

13. Thomas went to an electronics store to buy a flat screen HD TV together with some accessories. The

Loan 1: $7000 for 3 years at 10.5% p.a. compounding yearly

store offered him two different loans to buy the television and equipment.

Loan 2: $7000 for 5 years at 8% p.a. compounding yearly

The following agreement was struck with the store.
• Thomas will not be penalised for paying off the loans early.
• Thomas does not have to pay the principal and interest until the end of the loan period.
a. Explain which loan Thomas should choose if he decides to pay off the loan at the end of the first,
second or third year.
b. Explain which loan Thomas should choose for these two options.
Paying off loan 1 at term.
Paying off loan 2 at the end of 4 years.
c. Thomas considers the option to pay off the loans at the end of their terms. Explain how you can
determine the better option without further calculations.
d. Why would Thomas decide to choose loan 2 instead of loan 1 (paying over its full term), even if it
cost him more money?

14. Jan bought a computer for her business at a cost of $2500. Her accountant told her that she was entitled
to depreciate the cost of the computer over 5 years at 40% per year.
a. How much was the computer worth at the end of the first year?
b. By how much could Jan reduce her taxable income at the end of the first year? (The amount by
which Jan can reduce her taxable income is equal to how much value the asset lost from one year to
the next.)
c. Explain whether the amount she can deduct from her taxable income will increase or decrease at the
end of the second year.

To test your understanding and knowledge of this topic, go to your learnON title at
[Link] and complete the post-test.

TOPIC 1 Financial mathematics 29

Answers $700 $10.50 $710.50
$3.16 $913.66
6. a. b. c.

$52.50 $50.79 $35.92 $14.87

d. e.

Topic 1 Financial mathematics 7. a. b. c. d.

b. $515.86
1.1 Pre-test 8. a. See the table at the bottom of the page*

c. $8015.86
$9.17
1. D

$4275
2.
9. See the table at the bottom of the page*
3.
10. S1: Credit card — payment is delayed, but possession is

$337.50
4. D
immediate.
5.
S2: Lay-by, or cash if she has savings, would like to

$278.18 rA = 4%, rB = 10%, SIA = $2000 and SIB = $4500

6. B negotiate a lower price and has somewhere to store it.

rA = 9.76%, rB = 14.63%, SIA = $3121.95 and

7. 11.

$3377.69 SIB = $5121.95

8. C 12.
9.
10. C 13. Sample responses can be found in the worked solutions in
11. A the online resources.

$200 000
12. C

$3960 $3720 $3950

1.3 Buying on terms
$12 400
13.
1. a. i. ii. iii.
14.

deposit and weekly payments of $20 over 3 years.

The best deal is the one with the lowest cost — 20%
b.
15. D

2. a. $131.25 b. $55.38 c. $144.44

$13 600, $283.33 $40 000, $666.67

1.2 Simple interest
$2400
2. a. $1800 $900 $1920 $720 $5006.25, $278.13 $80 000, $666.67
1. 3. a. b.

$488 000, $2033.33

c. d.

$1500 $125 $281.25 $1080

b. c. d.

$5409.76
e.

$18.75 $55.00 $41.25

3. a. b. c. d.

$4530.08
4.

$125.33 $99.58
6. a. $1260 $19 504.80
4. a. b. c. 5.

$10 c. $20 764.80 $8164.80

d. e.
b.
5. d.

*8.a.

$7500.00 $112.50 $1000.00 $6612.00

Month Balance owing Interest Payment Closing balance

$6612.50 $99.19 $1000.00 $5711.69

January

$5711.69 $85.68 $1000.00 $4797.37

February

$4797.37 $71.96 $1000.00 $3869.33

March

$3869.33 $58.04 $1000.00 $2927.37

April

$2927.37 $43.91 $1000.00 $1971.28

May

$1971.28 $29.57 $1000.00 $1000.85

June

$1000.85 $15.01 $1015.86 $0

July
August

*9.
Payment option Immediate payment Immediate possession Possible extra cost Possible price negotiation
Cash ✓ ✓ ✓
Lay-by Possible deposit ✓
Credit card ✓ ✓
Payment option Payment Possession Extra cost Price
Cash Immediate Immediate Nil Negotiable
Lay-by Intervals Delayed Limited –
Credit card Delayed Immediate Possible –

30 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition

 $8409.96 $2609.96 $7920
$869.99 b. David’s investment = $8108.46
7. a. b. 16. a.

$2375 $7125 $2565

c. d. 15%

$9690 $269.17
8. a. b. c. c. Because David’s interest is compounded, the interest

$2000 $4000 $540

d. e. is added to the principal each quarter and earns interest

$4540 $252.22 17. a. $3750

9. a. b. c.
itself.

b. i. $3820.32
$226.80 $141.90 $360.94
d. e.

$87.11 $85.13 ii. $3881.05

10. a. b. c.

iii. $3912.36
$4600 $1656
d. e.

$130.33 $7256
11. a. b.
c. d. c. Compounding quarterly gives the best return.

equivalent return of R = 7% would be achieved.

12. C d. If we assume that interest is compounded annually, an

13. D
e. i. Yes
14. The larger the deposit, the smaller the loan and hence the
interest charged. Loans generally offer a lower rate than ii. No

$426
buying on terms. 18. Neither is correct. The best option is to choose 3.895% p.a.

b. $19 976.45
compounding monthly.
a. $3200
15.
19. a. Bankeast

b. $28 800
16.
Compound interest is added to the total at the end of each
c. r4 = 15%, r8 = 16%
20.
compounding period. Simple interest is a fixed amount.
d. 4 years: $49 280, 8 years: $68 864
21. 4 years, 8 months

e. 4 years: $960, 8 years: $684

22. 1006 kangaroos

17. The most advantageous terms are those which minimise 1.5 Depreciation
$14 936.14 $3584.59 $6596.65
the total monies paid. This can include accepting a larger

$17 694.72
1. a. b. c.
deposit to reduce the interest paid.

3. a. $19 118.26 $19 281.74

18. 20 days 2.

$3846.93 $6353.07
b.
1.4 Compound interest
$3244.80 $10 939.56 $24 617.98 $7216.02 $45 283.98
4. a. b. c. 38%

$14 678.02 $14 838.45 $129 394.77

1. a. b. c.

$1.8 million $569 531.25 $135 152.44

5. a. b.

$932.52 $10 650.81 c. $202 760.57

d. e. f.
6. a. b. c.

$25 816.04 $3 145 511.41

2. a. b.
7. B

$8784.60
d. e.
8. A

4. $3376.26
3.
9. C
10. B
Year 1 2 3 Total 11. A
$1040 $1123.20 $1213.06 $3376.26
a. $385 million
Simple 12. 10 years
Interest 13. b. 16 years
$2837.04 $837.04 14. a. 27%
$17 240.15
5. a. b.

S = V0 (1 − r)n
b.

7. $605.42
6.

8. $18 503.86; $386.47 3000 = 48 000(1 − r)9

b. $42 891.60 0.0625 = (1 − r)9
0.0625 = 1 − r√
9. a. 0.5833%
9

r = 1 − 0.0625
√
10. B

r = 0.265132
9
11. B

r = 26.5 … %
12. C

r = 27%
≈ $131 319.80
13. C

≈ $11 319.80 ≈ $519.80

14. a. 0.0247% b.
15. a. Approximately 43%

15. a. i. $17 745.95 $17 786.61

c. d.
b. Trial and error: can be time-consuming, answer is often

iii. $17 807.67 $17 821.99

ii.
an estimate; algebraic solution: correct answer calculated
iv.

16. a. $22 774.65

immediately from equation.
b. The interest added to the principal also earns interest. b. 13%
17. 1.725%

TOPIC 1 Financial mathematics 31

18. The depreciation formula is different from the compound 9. D

$24 403.79
interest formula in that it has a subtraction sign instead of an 10. B
addition sign. This is because the value is decreasing, 11.
not increasing.
12. 12 years
Project 13. a. Since the interest rate is lower for loan 2 than for loan
1, Thomas should choose loan 2 if he decides to pay the
1. See the table at the bottom of the page*

b. Loan 1 at term (3 years) amounts to $9444.63. Loan 2 at

loan off at the end of the first, second or third year.
106.4% b. 6.4%

the end of 4 years amounts to $9523.42. Thomas should

2. a.
3. 104%; 4%
See the table at the bottom of the page* choose loan 1.
c. Thomas should choose loan 1. At the end of its term (3
1.6 Review questions
$1000
years), it amounts to less than loan 2 at 4 years, 1 year
1. before its term is finished.

3. $54
2. C d. Thomas may not have the money to pay off loan 1 in 3

4. $7819
years. He may need the extra 2 years to accumulate his

5. a. $640 $5760 $2764.80 a. $1500

funds.

d. $8524.80 $177.60 b. $1000

b. c. 14.

$67 000 $27 000 $5400

e.

6. a. b. c. c. Since the depreciation of 40% is on a lower value each

year, the amount Jan can deduct from her taxable income
$15 746.40
d. 13.5% p.a.
decreases every year.
$25 808.37 $26 723.16
7.

$27 211.79 $27 550.17

8. a. b.
c. d.

*1.

W×P W×P
Period 1 Period 2

$75.00 $76.00
Item Weight (W) Price (P) Price (P)

$3.90 $4.20
Jeans 7 525 532

$25.00 $29.00
Hamburger 19 74.1 79.8

$103.90 $109.20
CD 10.8 270 313.2
Total 36.8 869.1 925

*3.

W×P W×P
Period 1 Period 2

$4.80 $4.95
Item Weight (W) Price (P) Price (P)

$220.00 $240.00
Bus fare 17 81.6 84.15

$10.50 $10.80
Rent 14.1 3102 3384

$1200.00 $1240.00
Movie ticket 10.8 113.4 116.64

$18.50 $21.40
Air conditioner 18.3 21 960 22 692

$2.95 $3.20
Haircut 5.6 103.6 119.84

$32.40 $35.00
Bread 19 56.05 60.8

$19.95 $21.00
Shirt 7 226.8 245

$1509.10 $1576.35
Bottle of scotch 8.2 163.59 172.2
Total 100 25 807.04 25 874.63

32 Jacaranda Maths Quest 10 Stage 5 NSW Syllabus Third Edition