EXPONENTIAL FUNCTIONS AND LOGARITHMS (Chapter 16) 397

Fv = Pv (1 + i)n
) 10 000 = Pv £ (1 + 0:085)4 fas 8:5% = 0:085g
) 10 000 = Pv £ (1:085)4
10 000
) = Pv fdividing by (1:085)4 g
(1:085)4
) 7215:74 = Pv fCalculator: 10 000 ¥ 1:085 ^ 4 ENTER g
) I should invest $7215:74 now.

FINDING THE RATE OF INTEREST

The compound interest formula can also be used to find the annual rate of increase for
investments.

Example 10 Self Tutor

If I bought a bottle of wine for $550 and 5 years later it was valued at $1550, at what
annual rate has my investment increased? Give your answer correct to two decimal
places.

Pv (1 + i)n = Fv
) 550 £ (1 + i)5 = 1550
1550
) (1 + i)5 = fdividing by 550g
r550
5 1550
) 1+i= ffinding the fifth root of both sidesg
550
r
5 1550
) i= ¡1 fsubtracting 1 from both sidesg
550
) i ¼ 0:2303

fCalculator: ( 1550 ¥ 550 ) ^ ( 1 ¥ 5 ) ¡ 1 ENTER g

) the investment increased by ¼ 23:03% p.a.

EXERCISE 16E
1 Copy and complete the table to After year Interest paid Future value
find the future value when E8000
is invested at 5% p.a. compound 0 - E8000
interest: 1 5% of E8000 = E400
2
3

2 a What will an investment of $40 000 at 10% p.a. compounding yearly amount to
after 3 years?
b What part of this is interest?
398 EXPONENTIAL FUNCTIONS AND LOGARITHMS (Chapter 16)

3 How much compound interest is earned by investing U 50 000 at 8% p.a. compounding

yearly, if the investment is over a 2 year period?

4 How much money must be invested now if you require $20 000 for a holiday in 4 years’
time and the money can be invested at a fixed rate of 7:5% p.a. compounding annually?

5 What initial investment is required to produce a maturing amount of 15 000 euros in 60

months’ time given that a fixed rate of 5:5% p.a. compounding annually is guaranteed?

6 Ken bought a valuable coin for E2000 and three years later sold it for E3500. Find the
yearly rate of increase for this investment.

7 A block of land was purchased for $150 000 and 4 years later was sold for $270 000.
Find the annual rate of increase for this investment.

8 The local council valued your house at $146 000 and 5 years later they valued it at
$213 000. Find the annual rate of increase for the valuation of your house.

F DEPRECIATION
Depreciation describes how goods diminish in value over time.

Motor cars, office furniture, computers, and many other items decrease in value as they age.
We call this process depreciation.
Things usually depreciate because they become damaged and imperfect through use and time,
or because their technology becomes superseded.
The following table shows how a computer bought for $1500 depreciates by 20% each year.
Items are depreciated on their reduced balance each year. This creates a compounding effect
similar to what we saw with interest in the previous section.

Age (years) Depreciation Value

0 - $1500:00
1 20% of $1500:00 = $300:00 $1500:00 ¡ $300:00 = $1200:00
2 20% of $1200:00 = $240:00 $1200:00 ¡ $240:00 = $ 960:00
3 20% of $960:00 = $192:00 $960:00 ¡ $192:00 = $ 768:00

At the end of each year, the computer is only worth (100% ¡ 20%) = 80% of its previous
value. Thus, we multiply by 0:8.

Its value after 1 year is V1 = $1500 £ 0:8,

after 2 years is V2 = V1 £ 0:8 = $1500 £ (0:8)2 ,
and after 3 years is V3 = V2 £ 0:8 = $1500 £ (0:8)3 : Depreciation is
an example of
This suggests that after n years, the value will be exponential
decay!
Vn = $1500 £ (0:8)n :
 EXPONENTIAL FUNCTIONS AND LOGARITHMS (Chapter 16) 399

The depreciation formula is:

Fv = Pv (1 ¡ i)n where Fv is the future value after n time periods

Pv is the original purchase price or present value
i is the depreciation rate per period as a decimal
n is the number of periods.

Example 11 Self Tutor

Depreciation is
A photocopier was purchased for $18 500. Pv ¡ Fv

a Given that photocopiers generally depreciate at 15%

per year, find its value after 5 years.
b By how much has it lost value?

a Pv = 18 500 Now Fv = Pv (1 ¡ i)n

i = 0:15 ) Fv = 18 500 (1 ¡ 0:15)5
n=5 = 18 500(0:85)5
¼ $8208:55
b Depreciation = $18 500 ¡ $8208:55 = $10 291:45

EXERCISE 16F
1 A car was purchased for $32 500, and its value depreciated annually by 16%. Find its
value after 10 years.
2 A motorbike was purchased for $8495 in July 2004 and depreciated at 12% each year.
a Copy and complete the following table:
Depreciation or
Number of years owned Value after n years
annual loss in value
0 - $8495
1 $1019:40 $7475:60
2
3
4

b The motorbike is used for a delivery service, and so the depreciation each year can
be claimed as a tax deduction. How much can be ‘claimed’ during the 4th year?
c Find the value of the motorbike at the end of the 8th year.
d What is the significance of F9 ¡ F10 ?

3 a If I buy a car for $38 500 and keep it for 3 years, what will its value be at the end
of that period given an annual depreciation rate of 20%?
b By how much will it have depreciated?
4 A cabin cruiser was bought for E120 000 in April 1998 and was sold for E45 000 in April
2006. At what average annual rate of depreciation did the boat lose its value?
400 EXPONENTIAL FUNCTIONS AND LOGARITHMS (Chapter 16)

5 A small jet aeroplane was purchased for 3:4 million dollars in January 1998 and sold for
2:35 million dollars in July 2005. What was its average annual rate of depreciation over
this period?

G EXPONENTIAL EQUATIONS
An exponential equation is an equation in which the unknown occurs as part of the index
or exponent.
For example: 2x = 8 and 30 £ 3x = 7 are both exponential equations.
If 2x = 8, then 2x = 23 . Thus x = 3 is a solution, and it is in fact the only
solution.

If ax = ak , then x = k.
If the base numbers are the same, we can equate indices.

Example 12 Self Tutor If we can make the

base numbers the
1
Solve for x: a 2x = 32 b 3x¡2 = 9 same then we can
equate the indices.
a 2x = 32 b 3x¡2 = 19
) 2x = 25 ) 3x¡2 = 3¡2
) x=5 ) x ¡ 2 = ¡2
) x=0

Example 13 Self Tutor

¡ 1 ¢1¡3x
Solve for x: a 6 £ 3x = 54 b 4x¡1 = 2

¡ ¢1¡3x
a 6 £ 3x = 54 b 4x¡1 = 12
) 3x = 9 ) (22 )x¡1 = (2¡1 )1¡3x
) 3x = 32 ) 2(x ¡ 1) = ¡1(1 ¡ 3x)
) x=2 ) 2x ¡ 2 = ¡1 + 3x
) ¡2 + 1 = 3x ¡ 2x
) x = ¡1

EXERCISE 16G
1 Solve for x:
a 3x = 3 b 3x = 9 c 2x = 8 d 5x = 1
e 3x = 13 f 5x = 15 1
g 2x = 16 h 5x+2 = 25
1 1 1
i 2x+2 = 4 j 3x¡1 = 27 k 2x¡1 = 32 l 31¡2x = 27
m 4 2x+1
= 12 n 9x¡3 = 3 o ( 12 )x¡1 = 2 p ( 13 )2¡x = 9