Page 1
chaPTer 11 FINANCE AND GROWTH 349
11
Finance and growth
This chapter focuses on the spending and investing value
of money.
In this chapter, you will learn:
• how to calculate simple interest
• how to calculate compound interest
• how to compare different investments
• about hire purchase
• about inflation and its effects
• about exchange rates and their effects
2153 TechMaths Eng G10 LB.indb 349 2015/10/22 3:41 PM
Page 2
chaPTer 11 FINANCE AND GROWTH 349
11
Finance and growth
This chapter focuses on the spending and investing value
of money.
In this chapter, you will learn:
• how to calculate simple interest
• how to calculate compound interest
• how to compare different investments
• about hire purchase
• about inflation and its effects
• about exchange rates and their effects
2153 TechMaths Eng G10 LB.indb 349 2015/10/22 3:41 PM
350 Technical Ma TheMaTicS Grade 10
11.1 investing through simple interest
Situation: Mimi’s friend, Modiba, an experienced builder, wants to start his own construction
company. He has a bit of savings but needs extra money to buy equipment.
He asks Mimi to invest R12 500 in his business. He promises to pay her back when his business
is up and running. After doing a few calculations, they draw up an agreement for how he will
repay her. They agree that he will also pay her 1,75% interest of the investment amount for
each month, until he repays her. When he repays her, he will owe her the R12 500 plus the total
interest up to the end of the current month. Mimi trusts Modiba completely and knows he will
repay her everything when he has the money.
From Mimi’s point of view, she is investing R12 500 in Modiba’s start-up business. She
represents the situation for herself on a timeline – a number line for time:
owed to me
after month n
R12 500 +
n(1,75% of R12 500)
R12 500 +
3 × n(1,75% of R12 500)
R12 500 +
2 × n(1,75% of R12 500)
R12 500 +
1 × n(1,75% of R12 500)
R12 500
owed to me
after month 3
owed to me
after month 2
owed to me
after month 1
principal
amount owed
to me
Final value of Mimi’s investment = R 12 500 + total interest
= R12 500 + R12 500 ×
1,75
_____
100
× number of months
= R12 500 ×
(
? 1 +
1,75
_____
100
× number of months
)
Let us use some symbols for the different quantities in our example:
A final total value of the investment (called the accumulated value)
P initial amount invested (called the principal value)
i interest rate per time unit, here per month, expressed as a decimal fraction
n number of time units, here number of months, over which interest is
calculated
2153 TechMaths Eng G10 LB.indb 350 2015/10/22 3:41 PM
Page 3
chaPTer 11 FINANCE AND GROWTH 349
11
Finance and growth
This chapter focuses on the spending and investing value
of money.
In this chapter, you will learn:
• how to calculate simple interest
• how to calculate compound interest
• how to compare different investments
• about hire purchase
• about inflation and its effects
• about exchange rates and their effects
2153 TechMaths Eng G10 LB.indb 349 2015/10/22 3:41 PM
350 Technical Ma TheMaTicS Grade 10
11.1 investing through simple interest
Situation: Mimi’s friend, Modiba, an experienced builder, wants to start his own construction
company. He has a bit of savings but needs extra money to buy equipment.
He asks Mimi to invest R12 500 in his business. He promises to pay her back when his business
is up and running. After doing a few calculations, they draw up an agreement for how he will
repay her. They agree that he will also pay her 1,75% interest of the investment amount for
each month, until he repays her. When he repays her, he will owe her the R12 500 plus the total
interest up to the end of the current month. Mimi trusts Modiba completely and knows he will
repay her everything when he has the money.
From Mimi’s point of view, she is investing R12 500 in Modiba’s start-up business. She
represents the situation for herself on a timeline – a number line for time:
owed to me
after month n
R12 500 +
n(1,75% of R12 500)
R12 500 +
3 × n(1,75% of R12 500)
R12 500 +
2 × n(1,75% of R12 500)
R12 500 +
1 × n(1,75% of R12 500)
R12 500
owed to me
after month 3
owed to me
after month 2
owed to me
after month 1
principal
amount owed
to me
Final value of Mimi’s investment = R 12 500 + total interest
= R12 500 + R12 500 ×
1,75
_____
100
× number of months
= R12 500 ×
(
? 1 +
1,75
_____
100
× number of months
)
Let us use some symbols for the different quantities in our example:
A final total value of the investment (called the accumulated value)
P initial amount invested (called the principal value)
i interest rate per time unit, here per month, expressed as a decimal fraction
n number of time units, here number of months, over which interest is
calculated
2153 TechMaths Eng G10 LB.indb 350 2015/10/22 3:41 PM
chaPTer 11 FINANCE AND GROWTH 351
This leads us to a formula and proper definition of simple interest:
simple interest is calculated only on the principal value:
A = P (1 + in)
The total interest is given by A - P = Pin
Where is simple interest used? Usually in situations where it is important to keep things easy
to understand:
• Informally, for private loans between individuals; financial institutions such as banks usually
use compound interest – see the next section.
• Grassroots community banking, where loans are made simple to understand.
• Government bonds, which are really just loans to the government by individuals; the
government guarantees that it will pay interest on certain fixed dates.
• Hire purchase.
• In situations where interest is paid out during the time, and not at the end e.g. if Modiba paid
Mimi the interest every month, instead of at the end.
exercises
1 Mimi pays the R12 500 into Modiba’s business account on 1 March 2015.
Mimi draws up the following table for Modiba, showing how much he owes each month for
the first year:
if you pay
back on
n, number of
months you take
to repay me
A - P, the total interest
you owe me (to the
nearest cent)
A, the total amount you
owe me (to the nearest
cent)
1 March 2015 0 R0 R12 500
1 April 2015 1
1 May 2015 2
1 June 2015 3
1 July 2015 4 R875 R13 375
1 August 2015 5
1 September 2015 6
1 October 2015 7
1 November 2015 8
1 December 2015 9
1 January 2016 10 R2 187,50 R14 687,50
1 February 2016 11
1 March 2016 12
2153 TechMaths Eng G10 LB.indb 351 2015/10/22 3:41 PM
Page 4
chaPTer 11 FINANCE AND GROWTH 349
11
Finance and growth
This chapter focuses on the spending and investing value
of money.
In this chapter, you will learn:
• how to calculate simple interest
• how to calculate compound interest
• how to compare different investments
• about hire purchase
• about inflation and its effects
• about exchange rates and their effects
2153 TechMaths Eng G10 LB.indb 349 2015/10/22 3:41 PM
350 Technical Ma TheMaTicS Grade 10
11.1 investing through simple interest
Situation: Mimi’s friend, Modiba, an experienced builder, wants to start his own construction
company. He has a bit of savings but needs extra money to buy equipment.
He asks Mimi to invest R12 500 in his business. He promises to pay her back when his business
is up and running. After doing a few calculations, they draw up an agreement for how he will
repay her. They agree that he will also pay her 1,75% interest of the investment amount for
each month, until he repays her. When he repays her, he will owe her the R12 500 plus the total
interest up to the end of the current month. Mimi trusts Modiba completely and knows he will
repay her everything when he has the money.
From Mimi’s point of view, she is investing R12 500 in Modiba’s start-up business. She
represents the situation for herself on a timeline – a number line for time:
owed to me
after month n
R12 500 +
n(1,75% of R12 500)
R12 500 +
3 × n(1,75% of R12 500)
R12 500 +
2 × n(1,75% of R12 500)
R12 500 +
1 × n(1,75% of R12 500)
R12 500
owed to me
after month 3
owed to me
after month 2
owed to me
after month 1
principal
amount owed
to me
Final value of Mimi’s investment = R 12 500 + total interest
= R12 500 + R12 500 ×
1,75
_____
100
× number of months
= R12 500 ×
(
? 1 +
1,75
_____
100
× number of months
)
Let us use some symbols for the different quantities in our example:
A final total value of the investment (called the accumulated value)
P initial amount invested (called the principal value)
i interest rate per time unit, here per month, expressed as a decimal fraction
n number of time units, here number of months, over which interest is
calculated
2153 TechMaths Eng G10 LB.indb 350 2015/10/22 3:41 PM
chaPTer 11 FINANCE AND GROWTH 351
This leads us to a formula and proper definition of simple interest:
simple interest is calculated only on the principal value:
A = P (1 + in)
The total interest is given by A - P = Pin
Where is simple interest used? Usually in situations where it is important to keep things easy
to understand:
• Informally, for private loans between individuals; financial institutions such as banks usually
use compound interest – see the next section.
• Grassroots community banking, where loans are made simple to understand.
• Government bonds, which are really just loans to the government by individuals; the
government guarantees that it will pay interest on certain fixed dates.
• Hire purchase.
• In situations where interest is paid out during the time, and not at the end e.g. if Modiba paid
Mimi the interest every month, instead of at the end.
exercises
1 Mimi pays the R12 500 into Modiba’s business account on 1 March 2015.
Mimi draws up the following table for Modiba, showing how much he owes each month for
the first year:
if you pay
back on
n, number of
months you take
to repay me
A - P, the total interest
you owe me (to the
nearest cent)
A, the total amount you
owe me (to the nearest
cent)
1 March 2015 0 R0 R12 500
1 April 2015 1
1 May 2015 2
1 June 2015 3
1 July 2015 4 R875 R13 375
1 August 2015 5
1 September 2015 6
1 October 2015 7
1 November 2015 8
1 December 2015 9
1 January 2016 10 R2 187,50 R14 687,50
1 February 2016 11
1 March 2016 12
2153 TechMaths Eng G10 LB.indb 351 2015/10/22 3:41 PM
352 Technical Ma TheMaTicS Grade 10
Redraw the table in your exercise book and calculate the missing values. A few values have
been given so that you can check that you understand the calculations.
(a) Describe in your own words how the amount Modiba owes Mimi changes from month
to month. Write down an expression that gives the change, using the symbols P and i.
(b) What is the total, i.e. effective, interest rate Modiba pays after three months? After six
months? After one year? Give your answers as percentages.
Hint: Calculate the percent increase of the accumulated value compared to the
principal for each of these three times.
(c) You will need some graph paper for this question. Use your completed table to plot the
total amount Modiba owes each month, as a graph. The horizontal axis is a time line
marked in months. The vertical axis is in Rand. What kind of graph do you get? Should
you ‘connect the dots’ or just leave them as points?
(d) Look carefully at the formula for simple interest. Rewrite the formula in the standard
form for a straight line function. Clearly indicate where the gradient and where the
A-intercept are.
(e) The first row for March may seem a little strange because Mimi expects the total interest
for each month. Does it make mathematical sense though? How?
2 (a) Redraw the following table and complete the number pattern. The pattern gives the
multiplication factor for each month that Modiba owes Mimi:
number of months
until Modiba pays
Mimi
1 2 3 4 5 … n
Multiplication
factor in algebraic
form
1 +
1,75
_____
100
1 + 4 ×
1,75
_____
100
…
Multiplication
factor in decimal
form
1,017 5 1,052 5 …
(b) Go back to exercise 1 (c). Do you notice anything new from before? If you do, describe
what you notice.
If you understand how the multiplication factor works, the formula for simple interest no
longer has any secrets to keep from you!
2153 TechMaths Eng G10 LB.indb 352 2015/10/22 3:41 PM
Page 5
chaPTer 11 FINANCE AND GROWTH 349
11
Finance and growth
This chapter focuses on the spending and investing value
of money.
In this chapter, you will learn:
• how to calculate simple interest
• how to calculate compound interest
• how to compare different investments
• about hire purchase
• about inflation and its effects
• about exchange rates and their effects
2153 TechMaths Eng G10 LB.indb 349 2015/10/22 3:41 PM
350 Technical Ma TheMaTicS Grade 10
11.1 investing through simple interest
Situation: Mimi’s friend, Modiba, an experienced builder, wants to start his own construction
company. He has a bit of savings but needs extra money to buy equipment.
He asks Mimi to invest R12 500 in his business. He promises to pay her back when his business
is up and running. After doing a few calculations, they draw up an agreement for how he will
repay her. They agree that he will also pay her 1,75% interest of the investment amount for
each month, until he repays her. When he repays her, he will owe her the R12 500 plus the total
interest up to the end of the current month. Mimi trusts Modiba completely and knows he will
repay her everything when he has the money.
From Mimi’s point of view, she is investing R12 500 in Modiba’s start-up business. She
represents the situation for herself on a timeline – a number line for time:
owed to me
after month n
R12 500 +
n(1,75% of R12 500)
R12 500 +
3 × n(1,75% of R12 500)
R12 500 +
2 × n(1,75% of R12 500)
R12 500 +
1 × n(1,75% of R12 500)
R12 500
owed to me
after month 3
owed to me
after month 2
owed to me
after month 1
principal
amount owed
to me
Final value of Mimi’s investment = R 12 500 + total interest
= R12 500 + R12 500 ×
1,75
_____
100
× number of months
= R12 500 ×
(
? 1 +
1,75
_____
100
× number of months
)
Let us use some symbols for the different quantities in our example:
A final total value of the investment (called the accumulated value)
P initial amount invested (called the principal value)
i interest rate per time unit, here per month, expressed as a decimal fraction
n number of time units, here number of months, over which interest is
calculated
2153 TechMaths Eng G10 LB.indb 350 2015/10/22 3:41 PM
chaPTer 11 FINANCE AND GROWTH 351
This leads us to a formula and proper definition of simple interest:
simple interest is calculated only on the principal value:
A = P (1 + in)
The total interest is given by A - P = Pin
Where is simple interest used? Usually in situations where it is important to keep things easy
to understand:
• Informally, for private loans between individuals; financial institutions such as banks usually
use compound interest – see the next section.
• Grassroots community banking, where loans are made simple to understand.
• Government bonds, which are really just loans to the government by individuals; the
government guarantees that it will pay interest on certain fixed dates.
• Hire purchase.
• In situations where interest is paid out during the time, and not at the end e.g. if Modiba paid
Mimi the interest every month, instead of at the end.
exercises
1 Mimi pays the R12 500 into Modiba’s business account on 1 March 2015.
Mimi draws up the following table for Modiba, showing how much he owes each month for
the first year:
if you pay
back on
n, number of
months you take
to repay me
A - P, the total interest
you owe me (to the
nearest cent)
A, the total amount you
owe me (to the nearest
cent)
1 March 2015 0 R0 R12 500
1 April 2015 1
1 May 2015 2
1 June 2015 3
1 July 2015 4 R875 R13 375
1 August 2015 5
1 September 2015 6
1 October 2015 7
1 November 2015 8
1 December 2015 9
1 January 2016 10 R2 187,50 R14 687,50
1 February 2016 11
1 March 2016 12
2153 TechMaths Eng G10 LB.indb 351 2015/10/22 3:41 PM
352 Technical Ma TheMaTicS Grade 10
Redraw the table in your exercise book and calculate the missing values. A few values have
been given so that you can check that you understand the calculations.
(a) Describe in your own words how the amount Modiba owes Mimi changes from month
to month. Write down an expression that gives the change, using the symbols P and i.
(b) What is the total, i.e. effective, interest rate Modiba pays after three months? After six
months? After one year? Give your answers as percentages.
Hint: Calculate the percent increase of the accumulated value compared to the
principal for each of these three times.
(c) You will need some graph paper for this question. Use your completed table to plot the
total amount Modiba owes each month, as a graph. The horizontal axis is a time line
marked in months. The vertical axis is in Rand. What kind of graph do you get? Should
you ‘connect the dots’ or just leave them as points?
(d) Look carefully at the formula for simple interest. Rewrite the formula in the standard
form for a straight line function. Clearly indicate where the gradient and where the
A-intercept are.
(e) The first row for March may seem a little strange because Mimi expects the total interest
for each month. Does it make mathematical sense though? How?
2 (a) Redraw the following table and complete the number pattern. The pattern gives the
multiplication factor for each month that Modiba owes Mimi:
number of months
until Modiba pays
Mimi
1 2 3 4 5 … n
Multiplication
factor in algebraic
form
1 +
1,75
_____
100
1 + 4 ×
1,75
_____
100
…
Multiplication
factor in decimal
form
1,017 5 1,052 5 …
(b) Go back to exercise 1 (c). Do you notice anything new from before? If you do, describe
what you notice.
If you understand how the multiplication factor works, the formula for simple interest no
longer has any secrets to keep from you!
2153 TechMaths Eng G10 LB.indb 352 2015/10/22 3:41 PM
chaPTer 11 FINANCE AND GROWTH 353
w orked example
Problem: A sum of money is invested at 12% p.a. simple interest. After seven years, the value
of the investment is R23 920. What amount was invested?
Solution:
A = P(1 + in) A = 23 920
23 920 = P(1 + 0,12 × 7) i =
12
____
100
= 0, 1 2
so P =
23 920
____________
(1 + 0,12 × 7)
P = ?
= R13 000 n = 7
w orked example
Problem: R6 000 is invested using simple interest calculated every month for 30 months.
The total interest is R1 125. What is the monthly interest rate as a percent?
Solution 1: Using the formula directly
A = P(1 + in) A = 6 000 + 1 125 = 7 125
7 125 = 6 000(1 + i × 30) P = 6 000
so 1 + 30i =
7 125
______
6 000
i = ?
30i =
7 125
______
6 000
- 1 n = 30
i =
7 125
______
6 000
______
30
- 1
= 6,25 × 1 0
-3
Therefore, % interest = 100 × i = 0,625% per month
Solution 2: Working smart and using the interest part of the formula.
1 125 = 6 000 × i × 30 A - P = 1 125
so i =
1 125
_________
6 000 × 30
P = 6 000
i = ?
n = 30
Therefore, % interest = 0,625% per month
2153 TechMaths Eng G10 LB.indb 353 2015/10/22 3:41 PM
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