Additional exercise

10.2 Compound interest,

annuities, amortization

1 Henrietta deposits $ 5000 in a bank that pays simple interest at a rate of 3.4% per annum.

a Work out how much she has in the bank at the end of 6 years.

Charlotte deposits $ 5000 in a bank that pays interest at a rate of 3.3% compounded annually.

b Work out how much Charlotte has in the bank at the end of 6 years.

2 Stewart invests 1200 GBP in a bank that offers interest at a rate of 2.8% compounded
annually.

Work out how long it will take for his money to double.

3 Haruna invests $ 3500 in a bank that offers interest at a rate of r% compounded annually.

After 5 years Haruna has $ 4300.

a Find the value for r.

b Work out how long it will take for her money to double.

4 Tomas invests 1500 USD in a bank that offers interest at a rate of 1.9% per annum
compounded monthly.

a Find out how much he has in the bank at the end of 7 years.

b Find out how long it will take before he has 2500 USD in the bank.

5 A bank offers interest at a rate of r% per annum compounded quarterly. Dogochan invests
3000 euros in this bank. After 10 years he has 4250 euros in the bank.

a Work out the interest rate.

At the end of the 10 years Dogochan removes his money from the bank and puts it into another
bank that offers a rate of 3.6% per annum compounded monthly.

b Work out how much he has in the bank after another 10 years.

6 Roswitha invests $ 2400 in a bank that offers interest at a rate of 2.1% per annum
compounded quarterly. Her sister, Patricia, invests her $ 2400 in another bank that offers
interest at a rate of 2.06% per annum compounded monthly.

Calculate how much each has in the bank after 12 years.

7 A small island has an inflation rate of 1.23% per annum.

a If this same rate continues for the next 5 years, calculate the percentage increase due to
inflation at the end of the five years.

An article costs 30 euros today.

b Find out how much you would expect it to cost in 2 years’ time due to inflation.

8 Conrad wants to save for his pension. He saves $ 1000 every year for 30 years at 3% interest
compounded annually.

Work out how much he will have at the end of the 30 years.

© Oxford University Press 2019 Additional exercise 1

 Additional exercise

9 Ursula has received an annuity of 20 000 GBP for 10 years at 6% per annum. The annuity has
to be paid out at monthly intervals.

Find Ursula’s monthly payments.

10 Jasmine borrows $ 6000 from a bank that charges 5% interest compounded annually. She
wants to pay back the loan in 12 monthly instalments.

Work out how much she has to pay back each month.

11 Mr and Mrs Whittaker take out a mortgage of $ 300 000 to buy a house. The mortgage is for 20
years at a rate of 2.8% interest per annum.

Calculate their monthly payments and discuss if this is a reasonable amount.

© Oxford University Press 2019 2

 Additional exercise

Answers

For ALL these examples you can also use the Finance app on your GDC

1 a 3.4% of 5000 = 170

5000 + 6 x 170 = 6020

6
 3.3 
b 5000 1    6075.36
 100 

n
 2.8 
2 2400  1200 1   Using Solver gives n = 25.1
 100 

5
 r 
3 a 4300  3500 1   and so r = 4.2%
 100 

b 16.8 years
127
 1.9 
4 a 1500 1    1713.19 b 26.9 years
 1200 

410
 r 
5 a 4250  3000 1   and so r = 3.5%
 400 

1210
 3.6 
b 4250 1    6088.37
 1200 

412 1212
 2.1   2.06 
6 Roswitha: 2400 1    3085.80 Patricia 2400 1    3072.39
 400   1200 

7 a 1.01235 = 1.0630 so, 6.3% b 30 x 1.01232 = 30.74 euros

8 $ 47575.42

6
 20000
9 1200 = 222.04
120
 6 
1  1 
 1200 

10 $ 513.64
240
2.8  2.8 
1
1200  1200 
11 300000  240
= 1633.92
 2.8 
1  1200  1
 

The total paid would be 392140.80 – so, yes, it is a reasonable amount.

© Oxford University Press 2019 3