Summary: Financial

Maths

Chapter 8: Interest on loan or investment accumulates -

NO repayment
Investment/Loan
Flat rate deprecia:on
Unit cost deprecia:on
Chapter 9: Interest on loan or investment PLUS repayment
Reducing Balance Loan
Interest Only Loan
Annuity
Perpetuity
Annuity investment/compounding interest investment
with regular payments

Chapter 8

Linear Growth and Decay

Known as an arithmetic sequence

arithmetic: goes up/down by the same amount
each time
This is termed simple interest

Growth +2

Decay -2

P0 = initial, Pn = current term,Pn+1 = next term

Simple Interest

OR
nth term rule:

 Investment/Loan

+D
n is in terms of years
Flat rate depreciation - D
n is in terms of years
Unit cost depreciation- D
n is in terms of units of
cost

Vn gives current amount the bank holds

To find interest earned:

Interest = Vn - V0

2006 VCAA Exam

Answer: B
91% answered correctly

2006 VCAA Exam

Answer: E
67% answered correctly

2007 VCAA Exam

Answer: C
68% answered correctly

Geometric Growth and Decay

Known as an geometric sequence

geometric: goes up/down by a multiple of the
previous term

This is termed compound interest

Compound Interest
Recurrence Model
OR
nth term rule:

R > 1, Growth
R < 1, Decay

Compound Interest

Investment/Loan, R = 1 + r/100

Reducing Balance, R = 1 - r/100

2006 VCAA Exam

Answer: A
37% answered correctly

2007 VCAA Exam

Answer: D
42% answered correctly

Nominal and Effective

Interest Rate
Nominal rate: the rate quoted per annum
Amount of interest earned is higher if the payment is compounded
more often
To find how much interest is actually earned taking into account
more compounding time periods, use the effective interest rate

eff (r, n)

Chapter 9

Interest accumulates
PLUS regular
repayments*

* this is important if you couldnt tell by the large font size

Chapter 9

Meshes linear growth/decay and geometric growth/

decay together

There is no general formula, you must use the Finance Solver

on the Ti-Nspire

Amortisation Tables

This type of growth/decay can be represented

using amortisation tables. Try to fill in the one below:

2016 MAV Exam 1

Answers
Q21: B
Q22: E

Using the Finance Solver

Number of payments
Interest Rate per annum
Present Value (start)
Regular repayment value
Future Value
& Cpy: Payments per year

Using the Finance Solver

SO IMPORTANT:
Money is NEGATIVE (-)

Money is POSITIVE (+)

You

Bank

Reducing Balance Loans

V0 = initial, Vn+1 = RVn - D

Taking out a loan

1.Interest accumulates each
compounding period (R)
2.Regular repayments are made (D)

2006 VCAA Exam 1

Answer: B
27% answered correctly

Interest Only Loans

D = r/100 x V0

Only the interest (D) is paid back each month.

Principal never changes
Therefore, the amount accumulated each month
because of R is equal to D

An interest only loan NEVER ends

Annuity
V0 = initial, Vn+1 = RVn - D

Opposite to reducing balance

Invest money
1.Interest accumulates each compounding
period (R)
2.Regular withdrawals are made (D)

Taking out of a superannuation fund is an

example of this

Perpetuity
D = r/100 x V0
Opposite to an interest only loan
Invest money and only the interest is withdrawn
Therefore, the amount accumulated each month
because of R is equal to D
A perpetuity will never end
Usually a question relating to this is about scholarships
or annual rewards or someone winning the lottery

2008 VCAA Exam 1

Answer: D
68% answered correctly

2006 VCAA Exam 1

Answer: E
23% answered correctly

Annuity Investment
V0 = initial, Vn+1 = RVn + D

Investment a certain amount of money

Keep adding regular payments each period

Amount of interest is going to continue increasing

since you are making the principal larger!

Putting into a superannuation fund is an example

2016 MAV Exam 1

Q24: C

There are two steps to this question

2007 VCAA Exam 2

Answers 2007