GMP-8 68 Investing money

Chapter 8 — Investing money

Are you ready? 3 a I = 40 000 × 0.056 × 1

1 a 12% = 0.12 = $2240 per year
b 8% = 0.08 b I = 2240 × 5
c 4.5% = 0.045 = $11 200 for 5 years
1 4 a I = 10 000 × 0.08 × 3
d 6 % = 6.25% = 0.0625 I = $2400
4
b $2400 + $10 000 = $12 400
1
2 a A = bh 5 I = 7600 × 0.069 × 2
2 I = $1048.80
1 Value = $1048.80 + $7600
A= × 6.8 × 18.2
2 = $8648.80
A = 61.88 6 a I = 140 × 0.0375 × 1 = $5.25
b T = a + (n − 1)d b Balance = $5.25 + $140 = $145.25
T = 7 + (19 − 1) × 5 7 a I = 7540 × 0.0595 × 1 = $448.63 per year
= 7 + 18 × 5 b I = 448.63 ÷ 2 = 224.32 each 6 months
= 97 c I = 448.63 × 4 + 224.32 = $2018.84
c I = Prn Value = $2018.84 + $7540 = $9558.84
I = 12 000 × 0.065 × 7 8 I = 9450 × 0.06 × 1.5 = $850.50
I = 5460 9 I = 5750 × 0.046 × 2 = $529.00
3 Answer is A.
10 I = 3500 × 0.05 × 2.5 = $437.50
Value = $437.50 + $3500 = $3937.50
Answer is C.
11 180 days ÷ 365 = 0.49 315
I = 4650 × 0.0575 × .49 315 = $131.86
12 I = Prn
2400 = 16 410 × 0.0975 × n
2400 ÷ 16 410 ÷ 0.0975 = n
n = 1.5 = 18 months
13 I = Prn
2000 = P × 0.08 × 4
4 a 60 ÷ 12 = 5 years 2000 = P × 0.32
b 15 ÷ 12 = 1.25 years 2000
P=
c 78 ÷ 52 = 1.5 years 0.32
5 a 6% of $1200 P = $6250
= 6 ÷ 100 × 1200 14 I = Prn
= $72 1200 = P × 0.06 × 1
b 8.5% of $2350 1200
= 8.5 ÷ 100 × 2350 P =
0.06
= $199.75
P = $20 000
c 0.6% of $12 500
Answer is C.
= 0.6 ÷ 100 × 12 500 1
= $75 15 a I = 14 500 × 0.0865 ×
6 a 56 ÷ 800 × 100 = 7%
2
I = $627.13
b 1050 ÷ 2800 × 100 = 37.5%
b I = 14 500 × 0.0865 × 10
c 625 ÷ 250 000 × 100 = 0.25%
= $12 542.50
Exercise 8A — Calculation of simple interest 1
16 a I = 60 000 × 0.075 ×
1 I = Prn 2
I = 4000 × 0.05 × 3 = $2250
I = $600 b I = 60 000 × 0.075 × 3
2 a I = 1200 × 0.10 × 1 = $13 500
I = $120 c 33 750 = 60 000 × 0.075 × n
b I = 2460 × 0.05 × 5 33 750 = 4500 × n
I = $615 33 750
n=
c I = 126 000 × 0.085 × 2 4500
I = $21 420 n = 7.5
d I = 9862 × 0.1125 × 6 1
7 years
I = $6656.85 2
e I = 1000 × 0.06 × 1.5 17 I = Prn
I = $90 1500 = P × 0.08 × 1
f I = 1750 × 0.0745 × 5.25 1500
P = = $18 750
= $684.47 0.08
 Investing money GMP-8 69
Further development 3 a I = 15 000 × 0.07 × 1 = $1050
18 I = 15 000 × 0.0875 × 5 = $6562.50 15 000 × 0.07 × 2 = $2100
Total value = $15 000 + $6562.50 15 000 × 0.07 × 3 = $3150
= $21 562.50 15 000 × 0.07 × 4 = $4200
19 15 000 − 3000 = 12 000 15 000 × 0.07 × 5 = $5250
I = $12 000 × 0.0875 × 5 = $5250
I = $3000 × 0.055 × 2 = $330
Total interest = 5250 + 330 = $5580
20 a I = 12 000 × 0.095 × 4
= $4560
b I = $4560 at 9% for 3 years
4560 b I = 2000 × 0.1 × 1 = $200
P = = $16 888.89
(0.09 × 3) 2000 × 0.1 × 2 = $400
21 630 = 3000 × 0.045 × t 2000 × 0.1 × 3 = $600
2000 × 0.1 × 4 = $800
630
t= 2000 × 0.1 × 5 = $1000
(3000 × 0.045)
= 4.67 years
= 4 years 8 months
22 Ted is correct because interest is only calculated upon the
principal and interest paid earns no interest.
23 Chris is incorrect. If the interest rate doubles, the amount of
interest paid will double but the principal will remain the
same.

Exercise 8B — Graphing simple interest

c I = 8600 × 0.075 × 1 = $645
functions
8600 × 0.075 × 2 = $1290
1 I = 8000 × 0.05 × 1 = $400
8600 × 0.075 × 3 = $1935
8000 × 0.05 × 2 = $800 8600 × 0.075 × 4 = $2580
8000 × 0.05 × 3 = $1200
8600 × 0.075 × 5 = $3225
8000 × 0.05 × 4 = $1600
8000 × 0.05 × 5 = $2000
a
No. of years 1 2 3 4 5
Interest $400 $800 $1200 $1600 $2000

d I = 50 000 × 0.082 × 1 = $4100

50 000 × 0.082 × 2 = $8200
50 000 × 0.082 × 3 = $12 300
50 000 × 0.082 × 4 = $16 400
50 000 × 0.082 × 5 = $20 500

2 a I = 20 000 × 0.08 × 1 = $1600

20 000 × 0.08 × 2 = $3200
20 000 × 0.08 × 3 = $4800
20 000 × 0.08 × 4 = $6400
20 000 × 0.08 × 5 = $8000
4 I = 6000 × 0.048 × 1 = $288
No. of years 1 2 3 4 5 6000 × 0.048 × 5 = $1440
1440 − 288 1152
Interest $1600 $3200 $4800 $6400 $8000 Gradient = = = 288
5 −1 4
b 5 a I = 3200 × 0.025 × 1 = $80
3200 × 0.025 × 2 = $160
3200 × 0.025 × 3 = $240
3200 × 0.025 × 4 = $320
3200 × 0.025 × 5 = $400

8000 − 1600 6400

c Gradient = = = 1600
5 −1 4
d Earn $16 000 after 10 years.
GMP-8 70 Investing money

b Year 1 = $80 + $3200 = $3280 No. of years 1 2 3 4 5

Year 2 = $160 + $3200 = $3360
Year 3 = $240 + $3200 = $3440
Year 4 = $320 + $3200 = $3520
Year 5 = $400 + $3200 = $3600
Interest (3%) $165.00 $330.00 $495.00 $660.00 $825.00
Interest (3.5%) $192.50 $385.00 $577.50 $770.00 $962.50
Interest (3.75%) $206.25 $412.50 $618.75 $825.00 $1031.25

6 a I = 25 000 × 0.05 × 1 = $1250 9 I = 12 500 × 0.045 × 1 = $562.50

25 000 × 0.05 × 5 = $6250 12 500 × 0.045 × 5 = $2812.50
I = 25 000 × 0.06 × 1 = $1500 I = 12 500 × 0.05 × 1 = $625.00
25 000 × 0.06 × 5 = $7500 12 500 × 0.05 × 5 = $3125.00
I = 25 000 × 0.08 × 1 = $2000 I = 12 500 × 0.052 × 1 = $650.00
25 000 × 0.08 × 5 = $10 000 12 500 × 0.052 × 5 = $3250.00

No. of years 1 2 3 4 5

Interest (5%) $1250 $2500 $3750 $5000 $6250

Interest (6%) $1500 $3000 $4500 $6000 $7500

Interest (8%) $2000 $4000 $6000 $8000 $10 000

b a After 8 years, 4.5% would give $4500

After 8 years, 5% would give $5000
After 8 years, 5.2% would give $5200.
b After 10 years, 4.5% would give $5625
After 10 years, 5.2% would give $6500
A difference of $875.
10 I = 4000 × 0.052 × 5 = $1040
7 a Whichbank earns $37 500 after 10 years. Eastpac earns I = 4000 × 0.058 × 5 = $1160
$35 000 after 10 years. NZA earns $30 000 after I = 4000 × 0.062 × 5 = $1240
10 years. After 5 years the value of the debentures is for 5.2%
b I = Prn = $4000 + $1040 = $5040
37 500 = 50 000 × r × 10 For 5.8% = $4000 + $1160 = $5160
37 500 = 500 000 × r For 6.2% = $4000 + $1240 = $5240
37 500 Graph goes through (0, 4000)
r =
500 000
= 0.075
Interest rate for Whichbank is 7.5%
I = Prn
35 000 = 50 000 × r × 10
35 000 = 500 000 × r
35 000
r =
500 000
= 0.07
Interest rate for Eastpac is 7%
Further development
I = Prn
30 000 = 50 000 × r × 10 480
11 a Gradient =
30 000 = 500 000 × r 5
r =
30 000 = 96
500 000 b This is the interest earned each year.
= 0.06 c 96 = Investment × 0.06
Interest rate for NZA is 6% 96
Investment =
8 a I = 5500 × 0.03 × 1 = $165 0.06
5500 × 0.03 × 5 = $825 = $1600
I = 5500 × 0.035 × 1 = $192.50 12 a $2000 was invested.
5500 × 0.035 × 5 = $962.50 b Interest earned in 5 years = $1000
I = 5500 × 0.0375 × 1 = $206.25 1000
= $200 per year
5500 × 0.0375 × 5 = $1031.25 5
 Investing money GMP-8 71
2000 × Rate × 1 = $200 A = 11 500 × 1.0553 11 P = 61 800
200 = $13 503.78 r = 0.06
Rate =
2000 e A = P(1 + r)n n=?
= 0.1 P = 8750; r = 0.0625; n = 6 A = 100 000
Interest rate = 10%. A = 8750 × 1.06256 A = P(1 + r)n
c After 8 years = $12 588.72 100 000 = 61 800 × 1.06n
I = 2000 × 0.1 × 8 = $1600 5 A = P(1 + r)n 100 000
= 1.06n
Total value = $3600 P = 45 000; r = 0.046; n = 10 61 800
13 This statement is correct as the A = 45 000 × 1.04610 1.618 = 1.06n
amount being added in both cases is = $70 555.25 Trial and error n = 9
the annual interest. 6 A = P(1 + r)n Answer is B.
14 $5000 × 0.05 × 1 P = 500 12 A: I = 10 000 × 0.09 × 5
= $250 interest every year. r = 0.002 ÷ 4 = 0.0005 = $4500
a The vertical intercept will be the n=2×4=8 B: r = 0.08, n = 5
initial investment of $5000. A = 500 × 1.00058 A = 10 000 × 1.085
b The gradient will be the interest = $502 = $14 693.28
earned every year of $250. 7 A = P(1 + r)n I = $4693.28
c A = 5000 + 250n P = 12 000 C: r = 0.078 ÷ 2 = 0.039,
where n is the number of years of r = 0.08 ÷ 4 = 0.02
the investment. n = 5 × 2 = 10
n=2×4=8
15 Interest earned every year A = 10 000 × 1.03910
A = 12 000 × 1.028
= $4000 × 0.07 = $14 660.73
= $14 059.91
= $280 I = $4660.73
8 a r = 0.06 ÷ 12 = 0.005 = 0.5%
Equation: A = 4000 + 280n D: r = 0.072 ÷ 4 = 0.018,
b A = P(1 + r)n
16 a Sandra is correct as the number of n = 5 × 4 = 20
P = 30 000
years is multiplied by the amount A = 10 000 × 1.01820
r = 0.005
of interest per year and this graph = $14 287.48
n = 1 × 12 = 12
starts at the origin. I = $4287.48
A = 30 000 × 1.00512
b A growth equation is not direct Answer is B.
= $31 850.33
variation as the graph does not go 13 r = 0.08 ÷ 2 = 0.04
through (0, 0). 9 a P = 960
n = 6 × 2 = 12
r = 0.045 ÷ 2 = 0.0225
A = 15 000
n=1×2=2
Exercise 8C — Calculation of A = P(1 + r)n
A = P(1 + r)n
compound interest 15 000 = P × 1.0412
= 960 × 1.02252
1 Principal = $5000 15 000 = P × 1.6
= $1003.69
Interest = 5000 × 0.10 × 1 = $500 15 000
b P = 7500 P=
2nd year’s principal = $5500 1.6
r = 0.056 ÷ 4 = 0.014
Interest = 5500 × 0.10 × 1 = $550 P = $9375
n = 3.5 × 4 = 14
3rd year’s principal = $6050 Closest to $9400
A = P(1 + r)n
Interest = 6050 × 0.10 × 1 = $605 Answer is C.
= 7500 × 1.01414
Future value = $6655 14 a r = 0.08
= 9111.56
2 Principal = $15 000 n=2
c P = 152 000
Interest = 15 000 × 0.07 × 1 = $1050 A = 13 500 × 1.082
r = 0.072 ÷ 2 = 0.036
2nd year’s principal = $16 050 = $15 746.40
n = 2.5 × 2 = 5
Interest = 16 050 × 0.07 × 1 b r = 0.08 ÷ 2 = 0.04
A = P(1 + r)n
= $1123.50 n=2×2=4
= 152 000 × 1.0365
Future value = $16 050 + $1123.50 A = 13 500 × 1.044
= $181 402.12
= $17 173.50 = $15 793.09
d P = 14 000
3 A = P(1 + r)n c r = 0.08 ÷ 4 = 0.02
r = 0.09 ÷ 12 = 0.0075
P = 2000; r = 0.08; n = 5 n=2×4=8
n = 4 × 12 = 48
A = 2000(1 + 0.08)5 A = 13 500 × 1.028
A = P(1 + r)n
= 2000 × 1.085 = $15 817.40
= 14 000 × 1.007548
= $2938.66 d r = 0.08 ÷ 12 = 0.006 666 7
= $20 039.67
4 a A = P(1 + r)n n = 2 × 12 = 24
e P = 120 000
P = 4000; r = 0.05; n = 3 A = 13 500 × 1.006 666 724
r = 0.1195 ÷ 4 = 0.029 875
A = 4000 × 1.053 n = 20 × 4 = 80 = $15 833.99
= $4630.50 A = P(1 + r)n 15 a r = 0.08 ÷ 365 = 0.000 219
b A = P(1 + r)n = 120 000 × 1.029 87580 = 0.0219%
P = 8000; r = 0.03; n = 5 = $1 264 568.95 b A = 100 000 × 1.000 219365
A = 8000 × 1.035 10 P = 5000 = $108 320.72
= $9274.19 r = 0.0475 ÷ 4 = 0.011 875 c I = $8320.72
c A = P(1 + r)n n=2×4=8 d A = 100 000 × 1.081
P = 18 000; r = 0.08; n = 4 A = 5000 × 1.011 8758 = $108 000
A = 18 000 × 1.084 = $5495.22 Extra is $320.72
= $24 488.80 I = $5495.22 − $5000 16 a I = 4000 × 0.06 × 3 = $720
d A = P(1 + r)n = 495.22 Simon’s value = $4000 + $720
P = 11 500; r = 0.055; n = 3 Answer is B. = $4720
GMP-8 72 Investing money

b Monica’s value = 4000 × 1.01412 2200

= 1.1025n CVIF = 1.218
= $4726.24 1600 CV = $11 000 × 1.218
c Monica’s initial investment is 1.375 = 1.1025n = $13 398
compounding; i.e., over the three Trial and error e r = 10 ÷ 4 = 2.5%
years the interest is also gaining 1.10253 = 1.34 n = 1.5 × 4 = 6
interest. 1.10254 = 1.477 CVIF = 1.160
4 years is needed to exceed $2200. CV = $5750 × 1.160
Further development
17 Interest compounded more often = $6670
Exercise 8D — Calculating 8 3.5% = 1.035
gives a greater return.
compound interest from a n=5
Answer is A.
18 a P = $3000 table of compounded values CVIF = 1.0355 = 1.188
Interest rate = 0.08 ÷ 4 = 0.02 1 $10 000 × 1.311 = $13 110 Answer is D.
Time period = 2 × 4 = 8 quarters 2 r = 8 ÷ 2 = 4% 9 CV = $32 546 × 2.147
A = P(1 + r)n n = 5 × 2 = 10 = $69 876.26
= 3000(1.02)8 $8500 × 1.48 = $12 580  $69 876
= $3514.98 3 r = 8 ÷ 4 = 2% Answer is C.
b P = $2000 n=2×4=8 10 CV = PV × CVIF
r = 0.06 ÷ 2 = 0.03 CV = $40 000 × 1.172 10 000 = PV × 1.158
n = 5 × 2 = 10 half years = $46 880 10 000
PV =
A = P(1 + r)n 4 r = 4 ÷ 4 = 1% 1.158
= 2000(1.03)10 n=2×4=8 = $8636
= $2687.83 CV = $2400 × 1.083 11 2500 = 2000 × CVIF
c P = 5000 = $2599.20 2500
CVIF =
r = 0.12 ÷ 12 = 0.01 5 a r = 9% 2000
n = 4 × 12 = 48 months n=6 = 1.25
A = P(1 + r)n CV = $5000 × 1.677 8% ÷ 2 = 4%
= 5000(1.01)48 = $8385 6 time periods = 3 years.
= $8061.13 b r = 10 ÷ 2 = 5% 12 a 1100 = 1000 × CVIF
d P = $6800 n=4×2=8 1100
r = 0.09 ÷ 4 = 0.0225 CV = $6700 × 1.477 CVIF =
1000
n = 6 × 4 = 24 quarters = $9895.90
c r = 6 ÷ 2 = 3% = 1.1
A = P(1 + r)n 10% p.a. for 1 time period = 1.1
= 6800(1.0225)24 n = 5 × 2 = 10
CV = $250 × 1.344 ∴ time needed = 1 year
= $11 599.22
= $336 b 1500 = 1000 × CVIF
19 P = $2050
d r = 4 ÷ 4 = 1% 1500
r = 0.06 ÷ 4 = 0.015 CVIF =
n = 2 × 4 = 8 quarters n=2×4=8 1000
A = 2050(1.015)8 CV = $23 670 × 1.083 = 1.5
= $2309.31 = $25 634.61 7% p.a. for 6 time periods = 1.5
P = $2309.31 e r = 8 ÷ 4 = 2% ∴ time needed = 6 years
r = 0.08 ÷ 4 = 0.02 n = 1.5 × 4 = 6 c 4000 = 3000 × CVIF
n = 2 × 4 = 8 quarters CV = $13 250 × 1.126 4000
CVIF =
A = 2309.31(1.02)8 = $2705.72 = $14 919.50 3000
20 A = $24 000 f r = 12 ÷ 12 = 1% = 1.333
r = 0.155 ÷ 4 = 0.038 75 n = 0.5 × 12 = 6 6% p.a. paid six-monthly = 3%
n = 6 × 4 = 24 quarters CV = $115 000 × 1.062 per period
P(1.038 75)24 = 24 000 = $122 130 3% for 10 time periods = 1.344
P × 2.490 376 = 24 000 6 a 1 + 2.5 ÷ 100 = 1 + 0.025 ∴ time needed = 5 years
24 000 = 1.025 d 10 000 = 9000 × CVIF
P = b 1.0252 = 1.051
2.490 376 10 000
c 1.0253 = 1.077 CVIF =
P = $9637 9000
d 1.0254 = 1.104
21 P = $1460 = 1.111
e 1.0256 = 1.160
A = $2100 8% p.a. paid quarterly = 2%
f 1.0258 = 1.218
n=2 per period
7 a CV = 900 × 1.0253
2100 = 1460(1 + r)2 2% for 6 time periods = 1.126
= 900 × 1.077
2100
= (1 + r)2 6 ÷ 4 = 1.5 years
= $969.30
1460 = 18 months
b CV = 2340 × 1.0254
1.4384 = (1 + r)2 e 17 500 = 12 000 × CVIF
= $2340 × 1.104
1 + r = 1.4384 17 500
= $2583.36 CVIF = = 1.4583
1 + r = 1.199 c r = 10 ÷ 4 = 2.5% 12 000
r = 0.199 n=4 10% p.a. paid six-monthly = 5%
Interest rate = 19.9% = 20%. CVIF = 1.0254 = 1.104 per period
22 P = $1600 CV = $7200 × 1.104 5% for 8 time periods = 1.477
A = $2200 = $7948.80 8 ÷ 2 = 4 years
r = 0.1025 d r = 10 ÷ 4 = 2.5% 13 1300 = 1000 × CVIF
2200 = 1600(1.1025)n n=2×4=8 CVIF = 1.3
 Investing money GMP-8 73
2 years quarterly = 2 × 4 = 8 time periods b $7560(1.12)8
8 periods at 4% give 1.369 = 7560 × 2.476
4% × 4 = 16% = $18 718.56
14 a 1200 = 1000 × CVIF c $12 500(1.12)8 (r = 0.24 ÷ 2 = 0.12, n = 4 × 2 = 8)
CVIF = 1.2 = $12 500 × 2.476
3 years at 7% gives 1.225 = $30 950
∴ interest rate = 7% p.a. 18 Double in value means multiply the initial investment by 2.
b 2600 = 2000 × CVIF So 7 interest periods.
CVIF = 1.3 19 7% for 5 interest periods = 1.403
4 years at 6 months = 8 time periods 5% for 7 interest periods = 1.407
8 periods at 4% gives 1.369 5% for 7 interest periods has a greater CVIF value.
∴ interest rate = 4% × 2 = 8% p.a. 20 4%
c 650 = 500 × CVIF
Periods 11 12 13 14 15
CVIF = 1.3
1 year quarterly = 4 time periods CVIF 1.539 1.601 1.665 1.732 1.801
4 periods at 7% gives 1.311
∴ interest rate = 7% × 4 = 28% p.a. Periods 16 17 18 19 20
d 20 000 = 10 000 × CVIF
CVIF 1.873 1.948 2.026 2.107 2.191
CVIF = 2
8 years annually 21 a A = $4500(1.04)12
8 periods at 10% gives 2.144 = 4500 × 1.601
∴ interest rate = 10% p.a. = $7204.50
e 6000 = 3500 × CVIF b 16% = 4 × 4%
CVIF = 1.714 n = 5 × 4 = 20 periods
5 years six monthly = 10 time periods $6250(1.04)20
10 periods at 6% gives 1.791 = 6250 × 2.191
∴ interest rate = 6% × 2 = 12% p.a. = 13 693.75
15 a I = 10 000 × 0.1 × 5 I = $13 693.75 − $6250
= $5000 = $7443.75
Value = $15 000 c Double the investment after 18 time periods.
b CV = 10 000 × 1.611
= $16 110 Exercise 8E — Graphing compound interest
c CV = 10 000 × 1.629 functions
= $16 290
1 a A = 8000 × 1.051 = $8400
d Bruce receives $5000
8000 × 1.052 = $8820
Keith receives $6110
8000 × 1.053 = $9261
Max receives $6290
8000 × 1.054 = $9724
5000
e Bruce = × 100 = 50% 8000 × 1.055 = $10 210
10 000
6110 No. of years 1 2 3 4 5
Keith = × 100 = 61.1%
10 000 Future value $8400 $8820 $9261 $9724 $10 210
6290 b
Max = × 100 = 62.9%
10 000

Further development
16
Interest period Value
1 1.121 = 1.120
2 1.122 = 1.254 2 a A = 12 000 × 1.081 = $12 960
12 000 × 1.082 = $13 997
3 1.123 = 1.405 12 000 × 1.083 = $15 117
4 1.124 = 1.574 12 000 × 1.084 = $16 326
12 000 × 1.085 = $17 632
5 1.125 = 1.762
No. of years 1 2 3 4 5
6 1.126 = 1.974
Future value $12 960 $13 997 $15 117 $16 326 $17 632
7 1.127 = 2.211
b
8 1.128 = 2.476
9 1.129 = 2.773
10 1.1210 = 3.106

17 a $3000(1.12)4
= 3000 × 1.574
= $4722
GMP-8 74 Investing money

c From graph approximately $25 900 7 years 1200 × 1.0128 = $1586

3 a A = 15 000 × 1.071 = $16 050 8 years 1200 × 1.0132 = $1650
15 000 × 1.072 = $17 174 9 years 1200 × 1.0136 = $1717
15 000 × 1.073 = $18 376 10 years 1200 × 1.0140 = $1787
15 000 × 1.074 = $19 662
15 000 × 1.075 = $21 038

b Interest at the end of every year

Year 1 = 1249 − 1200 = $49
Year 2 = 1299 − 1200 = $99
b A = 2000 × 1.11 = $2200 Year 3 = 1352 − 1200 = $152
2000 × 1.12 = $2420 Year 4 = 1407 − 1200 = $207
2000 × 1.13 = $2662 Year 5 = 1464 − 1200 = $264
2000 × 1.14 = $2928 Year 6 = 1524 − 1200 = $324
2000 × 1.15 = $3221 Year 7 = 1586 − 1200 = $386
Year 8 = 1650 − 1200 = $450
Year 9 = 1717 − 1200 = $517
Year 10 = 1787 − 1200 = $587

4 a Using CVIF 6 a 4%
r = 6% ÷ 2 = 3% FV = 8000 × 1.041 = $8320
Time periods are 6 monthly. I = $8320 − $8000 = $320
FV = 2000 × 1.03 = $2060 FV = 8000 × 1.042 = $8652.80
2000 × 1.061 = $2122 I = $8653 − $8000 = $653
2000 × 1.093 = $2186 FV = 8000 × 1.043 = $8998.91
2000 × 1.126 = $2252 I = $8999 − $8000 = $999
2000 × 1.159 = $2318 FV = 8000 × 1.044 = $9358.87
2000 × 1.194 = $2388 I = $9359 − $8000 = $1359
2000 × 1.230 = $2460 FV = 8000 × 1.045 = $9733.22
2000 × 1.267 = $2534 I = $9733 − $8000 = $1733
2000 × 1.305 = $2610 6% is calculated the same way using r = 1.06
2000 × 1.344 = $2688 8% is calculated the same way using r = 1.08

Years 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

No. of years 1 2 3 4 5
FV $2060 $2122 $2186 $2252 $2318 $2388 $2460 $2534 $2610 $2688
Interest (4%) $320 $653 $999 $1359 $1733
b Interest (6%) $480 $988 $1528 $2100 $2706
Interest (8%) $640 $1331 $2078 $2884 $3755

5 a P = 1200
4% ÷ 4 = 1% compounding quarterly
FV = 1200 × 1.011 = $1212
1200 × 1.012 = $1224
1200 × 1.013 = $1236 7 a 6% means r = 1.06 compounded annually
1 year 1200 × 1.014 = $1249 FV = 4000 × 1.061 = $4240
2 years 1200 × 1.018 = $1299 4000 × 1.062 = $4494
3 years 1200 × 1.0112 = $1352 4000 × 1.063 = $4764
4 years 1200 × 1.0116 = $1407 4000 × 1.064 = $5050
5 years 1200 × 1.0120 = $1464 4000 × 1.065 = $5353
6 years 1200 × 1.0124 = $1524 6% ÷ 2 means r = 1.03 compounded six monthly
 Investing money GMP-8 75
FV = 4000 × 1.032 = $4244 c $6.08 million ÷ 8 million
4000 × 1.034 = $4502 = 0.76
FV = 4000 × 1.036 = $4776 = 76c/share
4000 × 1.038 = $5067 7 a Net profit = (1 − 0.36) × 72.4 million
4000 × 1.0310 = $5376 = 0.64 × 72.4
No. of years 1 2 3 4 5 = $46.336 million
b 75% of $46.336 million is distributed = $34.752 million
Annually $4240 $4494 $4764 $5050 $5353 $34.752 million
Dividend =
Six-monthly $4244 $4502 $4776 $5067 $5376 42 million shares
b = 0.827
= 82.7c/share
8 a Profit = dividend × number of shares
= 0.14 × 23.4 million
= $3.276 million
3.276 million
b Gross profit =
(1 − 0.36)
3.276 million
Further development =
0.64
8 A compound interest graph is not linear because the amount = $5.118 75 million
of interest earned each year is not the same. 9 0.78 × 4.2 million
9 This is true because the difference at any point in time is
= $3.276 million
only the initial principal.
10 Compound interest graph is not linear so this graph will not 0.48
10 × 100
be direct variation. 10.50
11 A = P(1 + r)n = 4.57%
= 3000(1.08)n 0.56
11 × 100 = 6.7%
12 Graph X starts at 1000 and Graph Y at 1500 — eliminate 8.40
B and D. 0.78
Graph X grows quicker than graph Y so the interest rate is × 100 = 10.5%
higher. 7.40
Answer is C. 1.20
× 100 = 5.1%
13 10 000(1.08)n > 11 000(1.06)n 23.40
1.08n > 1.1(1.06)n 1.09
Trial and error × 100 = 6.9%
15.76
1.085 = 1.469
0.04
1.1(1.06)5 = 1.472 × 100 = 5.3%
1.086 = 1.587 0.76
1.1(1.06)6 = 1.560
Answer is after 6 years. Dividend Share price Dividend yield
Exercise 8F — Share dividends $0.56 $8.40 6.7%
1 5 000 000 ÷ 20 000 000
= 0.25 $0.78 $7.40 10.5%
25c/share $1.20 $23.40 5.1%
2 3 000 000 ÷ 2 000 000
= $1.50/share $1.09 $15.76 6.9%
3 150 000 ÷ 2 500 000 $0.04 $0.76 5.3%
= 0.06
= 6c/share 0.11
4 1 200 000 ÷ 4 100 000 12 × 100 = 2.91%
3.78
= 0.2927
0.35
= 29.27c/share 13 A: × 100 = 7.68%
5 a Tax payable = 36 ÷ 100 × 3 400 000 4.56
= 1 224 000 0.62
B: × 100 = 9.84%
= $1.224 million 6.30
b 3 400 000 − 1 224 000 1.10
= 2 176 000 C: × 100 = 8.87%
12.40
= $2.176 million 0.0765
c 2 176 000 ÷ 5 000 000 D: × 100 = 9.0%
0.85
= 0.4352
= 43.52c/share Answer is B.
6 a Tax payable = 36 ÷ 100 × $14.5 million 6.5
14 × $5600 = $364
= $5.22 million 100
Profit made = $14.5 million − $5.22 million Further development
= $9.28 million
15 A: 0.23 ÷ 3.46 × 100 = 6.65%
b Distribution = $9.28 million − $3.2 million
B: 0.71 ÷ 8.29 = 8.56%
= $6.08 million
GMP-8 76 Investing money

C: 1.23 ÷ 12.39 = 9.93% b Approximately $7.60

D: 2.30 ÷ 19.49 = 11.80% 2 a
Best to worst is D, C, B, A.
0.57
16 a Dividend yield = × 100
5.60
= 10.2%
1.98
b Dividend yield = × 100 = 8.4%
23.45
c Spent $5.60 × 1000 = $5600 on Cannington Ltd. shares, b Approximately $2.00
which returned a dividend of 0.57 × 1000 = $570. 3 a
Spent $23.45 × 500 = $11 725 on Warragul Ltd shares,
which returned a dividend of 1.98 × 500 = $990.
Total spent = $5600 + $11 725 = $17 325
Total earned = $570 + $990 = $1560
1560
Overall yield = × 100 = 9%
17 325
0.76
17 a × 100 = 6.6%
11.50
8.75
b × $12.12 = $1.06/share
100
6.7
18 a × $21.50 = $1.44 b Approximately $1.20
100 4 a
b $1.44/share × 5.2 million shares = $7.4906 million after
tax profit
0.227
19 × 100 = 3.94%
5.76
0.264
× 100 = 4.58%
5.76 b Approximately $15.00
3.94% + 4.58% = 8.52% 5 a
0.056
20 a × 100 = 0.59%
9.50
b 1.12 × $9.50 = $10.64
c 1.15 × 5.6c = 6.44c/share
0.0644
d × 100 = 0.61%
10.64
$25.7 million
21 a = $1.38/share
18.6 million b $14.50
1.38 Further development
b × 100 = 13% dividend yield
10.60 6 a Shares are considered a riskier investment because share
c Profit = 1.1 × 25.7 million prices go up and down.
= $28.27 million b The graphs of share prices shows the fluctuations of their
rise and fall.
Number of shares = 18.6 million + 2 million
7 The line of best fit is the average trend over a period of time.
= 20.6 million 8 a A line of best fit is normally a straight line.
28.27 million b Not always as the growth may be exponential (the same
= $1.37/share.
20.6 million shape as a compound interest graph).
1.37 9 a The vertical intercept will be the purchase price.
Dividend yield = × 100 = 12.9%. b The gradient will be negative of the share price has lost
10.60 value.
22 The dividend yield expresses the share market dividend as a 10 a Growth is $10
percentage of the share price, hence making it comparable I = Prt
to other shares and other forms of investment. 10 = 10 × r × 5
10 = 50r
Exercise 8G — Graphing share performance r = 0.2
1 a Rate = 20%
b A = P(1 + r)n
20 = 10(1 + r)5
2 = (1 + r)5
5
2 =1+r
1.1487 = 1 + r
r = 0.1487
Rate = 14.87%
 Investing money GMP-8 77
Exercise 8H — Inflation and appreciation Inflation = 0.85%/q, r = 0.0085
1 $20 000 × 104 ÷ 100 = $20 800 n = 3 × 4 = 12
2 a $600 × 103 ÷ 100 = $618 P = $18 000
b $45 × 107 ÷ 100 = $48.15 Car value = 18 000(1.0085)12
c $1.80 × 106 ÷ 100 = $1.91 = $19 924.31
d $560 × 103.5 ÷ 100 = $579.60 19 924.31 − 17 308.42 = $2615.89 short
e $925 × 100.8 ÷ 100 = $932.40 18 a $1000(1.05)1 = $1050
3 a $850 × 103.3 ÷ 100 = $878.05 b Cost of goods = 1000(1.035)1 = $1035
b $878.05 × 102.7 ÷ 100 = $901.76 1050
c × 100 = 101.45%.
4 $112.50 × 104.8 ÷ 100 = $117.90 1035
5 $550 × (1.03)4 = $619 d Investment has grown by 1.45%.
6 $1.70 × (1.04)10 = $2.52
7 $1.00 × 1.0345 = $1.18 Chapter review
≈ $1.20 to the nearest 5c Multiple choice
8 $98.50 × 1.0327 = $122.80
1 I = 5600 × 0.056 × 3
9 $2.50 × 1.025 = $2.76
= $940.80
Answer is D.
Answer is A.
10 $200 × 1.25 = $497.66
 $500 to the nearest $10. 2 A = 5600 × 1.0563
11 $350 × 1.120 = $2354.62 = $6594.46
 $2350 to the nearest $10 I = $6594.46 − $5600
12 $400 × 1.1513 = $2461.12 = $994.46
 $2460 to the nearest $10 Answer is B.
13 a P = 1.10 3 $4212 ÷ 4000 shares
r = 0.009 = $1.053/share
n = 3 × 4 = 12 1.053
× 100 = 4.5%
A = 1.1(1.009)12 23.40
A = $1.22 Answer is C.
b P = 3.20, r = 0.009, n = 12 2.9
A = 3.2(1.009)12 = $3.56 4 × $67.50 = $1.96
100
c P = 86, r = 0.009, n = 12 Answer is B.
A = 86(1.009)12 = $95.76
d P = $1650, r = 0.009, n = 12 Short answer
A = $1650(1.009)12 = $1837.29
1 I = 5000 × 0.04 × 5
e P = $350 000, r = 0.009, n = 12
= $1000
A = 350 000(1.009)12 = $389 728.39
2 a I = 3600 × 0.09 × 4 = $1296
14 P = 250, r = 0.023, n = 2
b I = 23 500 × 0.06 × 2 = $2820
A = 250(1.023)2 = $261.63
c I = 840 × 0.025 × 2 = $42
P = $261.63, r = 0.035, n = 3
d I = 1350 × 0.002 × 1.5 = $4.05
A = 261.63(1.035)3 = $290.07
e I = 45 820 × 0.0475 × 3.5 = $7617.58
15 P = 35 000, r = 0.002/quarter, n = 2 × 4 = 8
3 a I = 32 500 × 0.056 × 4 = $7280
A = P(1 − .002)8 = 35 000(0.998)8
b $32 500 + $7280 = $39 780
= $34 443.90
c $7280 ÷ 16 payments = $455
143.50
16 a × 100 = 19.26% 4 3900 = 15 000 × r × 4
745
3900 = 60 000 × r
b Groceries: P = $143.50
3900
r = 0.041 r= = 0.065
60 000
n=3
A = 143.50 (1.041)3 = $161.88 Rate = 6.5%
c Wages: P = $745 5 1351.25 = 23 500 × 0.046 × n
r = 0.03 1351.25 = 1081 × n
n=3 1351.25
n = = 1.25
A = 745(1.03)3 = $814.08 1081
161.88 1
d × 100 = 19.89% n = 1 years or 15 months
814.08 4
The average basket of groceries now takes up 19.89% 6 a I = 7500 × 0.06 × 1 = $450
(before it was 19.26%) which is a larger proportion of 7500 × 0.06 × 2 = $900
the average wage. The wage after 3 years has less 7500 × 0.06 × 3 = $1350
purchasing power than at the beginning of the period.
7500 × 0.06 × 4 = $1800
17 a, b $18 000 − $15 000 = $3000
7500 × 0.06 × 5 = $2250
Investment = $15 000
r = 0.048 ÷ 4 = 0.012
n = 3 × 4 =12 No. of years 1 2 3 4 5
A = 15 000(1.012)12 Interest $450 $900 $1350 $1800 $2250
= $17 308.42 to spend.
GMP-8 78 Investing money

b b

c After 10 years, the future value is approximately

c Gradient = 450 $29 600.
d After 10 years, interest earned is $4500. 14 $21 million ÷ 10.9 million = $1.93c/share
7 A = 2400 × 1.053 15 $2.3 billion ÷ 156 million = $14.74/share
= $2778.30 0.45
16 × 100 = 5.22%
8 r = 6% ÷ 2 = 3% six monthly 8.62
n=4×2=8 0.007
A = 4500 × 1.038 = $5700.47 17 × 100 = 1.6%
0.45
9 a A = $3000 × 1.074 = $3932.39
18 0.042 × 19.48 = 0.82c/share
b r = 10% ÷ 2 = 5% six monthly 19 a
n=3×2=6
A = $9400 × 1.056 = $12 596.90
c r = 8% ÷ 4 = 2% quarterly
n = 3 × 4 = 12
A = $11 400 × 1.0212 = $14 457.96
d r = 7.2% ÷ 2 = 3.6% six monthly
n = 1.5 × 2 = 3 b Approximately $18.00
A = $21 450 × 1.0363 = $23 851.00 20 $80 × 1.043 = $83.44
e r = 2.6% ÷ 4 = 0.65% quarterly 21 $125 × 1.0375 = $149.90
n = 2.5 × 4 = 10 22 $120 × 1.1530
A = $5000 × 1.006510 = $5334.67 = $7945
10 r = 3.2% ÷ 4 = 0.8% quarterly = $7900 to the nearest $100
n=2×4=8
Extended response
A = 11 500 × 1.0088 = $12 256.94
1 a I = 7500 × 0.042 × 2 = $630
I = $12 256.94 − $11 500 = $756.94
Value = $7500 + $630 = $8130
11 a A = 7500 × 1.0995 = $12 024.02
b r = 4% ÷ 4 = 1% quarterly
b r = 9.6% ÷ 4 = 2.4% quarterly
n=2×4=8
n = 5 × 4 = 20
A = 7500 × 1.018 = $8121.43
A = 7500 × 1.02420 = $12 052.04 No, the investment of simple interest is worth more than
c Compounding interest more often. the compounded quarterly investment.
12 a $6000 × 1.311 = $7866 c No, Jaclyn could lose the money she has saved for her
b $7230 × 1.828 = $13 216.44 holiday.
c $3695 × 1.194 (3% for 6 periods) 4.8
= $4411.83 d Dividend = × 5.00
100
d $12 400 × 1.629 (5% for 10 periods) = 0.24c/share
= $20 199.60 Return on investment = 0.24 × 1500 × 2 years = $720
e $2400 × 1.083 (1% for 8 time periods) Value of shares = 1500 × $5.75 = $8625
= $2599.20 Total value = $8625 + $720 = $9345
13 a 20 000 × 1.041 = $20 800 9345
20 000 × 1.042 = $21 632 e × 100 = 124.6%
7500
20 000 × 1.043 = $22 497
24.6% profit
20 000 × 1.044 = $23 397
2 a 30 000 × 1.0352 = $32 136.75
20 000 × 1.045 = $24 333
b 30 000 × 1.042
= $32 572.92
No. of years 1 2 3 4 5 = $32 600 (to the nearest $100)
Future value $20 800 $21 632 $22 497 $23 397 $24 333 c $32 572.92 − $32 136.75
= $436.17