V

rvhere rt=

P(r

\ **) ancir.= 1r *-I-) t00/ \- r00l

A^ = f 7t ,]
/ r . *) \n

sorha{

where A,, is the amount after n time periods.

::

T;.

{l L f }tr8:&i .fw.+ tu;4s

,i+S:F,qn..*-'Sr.u*$d}HS

ffiffi.ffi

A woman invests $1000 at the beginning of each year in a superannuation scheme.If the interest is paid at the rate of l2%o p.a. on the investment (compounding annually), how much will her investment be,worth after 20 vears?

tt =

the lst $1000 will be invested for 20 years at lTVo p.a.

the 2nd $1000

= t3 =
t2

will be invested for will be invested for

19 years at L2Va p.a.

18 years at l2vo p.a.

the 3rd $1000

t

tz.

the 20th $1000

will be invesred for

1 year at

l\Vo p.a.

Finding the amount compounded annually using

\" - A = p(t * =100i ' we 'nave: \ ''

rr = 1000(r * ' \

i|)'o 1000/

= 1000( 1.12)20 = 1000( rJ2)ts =

1000( rJ2)18

tt = -

looo(r *

i|)'n I00u/
1000i

rr = 1000(t *il)'t '1 ----\-

1zo

= 1000(r.#fu)' =

1000( 1.141

To find the total of her inrrestment after 20 years, we need to add the separate amounts:

f'otal

= 1000(l .12)'u + 1000( 1Jz)te + r000(1.12)ru+... + 1000( 1.rz)1 = i000[( f .i2)2" + ( l .12)'n * (.1.12)'* * ... + (1.12)rl
, llllllli

^.,.,[ I .t2( I

'L

-'rt?

( I .l z)ttt /

)j
/
|

I:..:-^ ,' - u(l -," LjslngJ/r= l_-

= $80, 698.74 Thus her total investment amounts to $80,698.74

Linda bo'ows $2000 ar rvo permonth reducibre interesr. rf she repavs the in equal monthly instalments over 4 years, how much is each instalment? loan

tt=if;'3

Amount borrowed = S 2000. r = \a/c per month = 0.01 and n = 4 x 12= zl8 months Let the monthly instalrnent be = S M ancl the arnount orving a{'ter-n months = SA,, Onr aim is to fincl SM i.e.. the amount of each instalment.

Aftel I monrh (after paying the lst instalment), we have: Ar = 2000+ interest -ivI - 2000+2000x0.AI-fuj

= 2000( l.0t) - M
After 2 months
Az.

= AtxLjI-M

= [2000(1.01) - Mlx =
2000(1.01

1.01

-M

)2-1.01

xM-M
+ 1)

= 2000(i
After 3 months

.01 )2

- M0.01

At =

Azx 1.01 -M

[2000(1.0i)2 -M(r.01

+])lx

1.01

= 2ooo(1.01)3-M(1.01 +1)x1.01
After 4 months

-M -M

= 2000(1.01)r - MJ.01r + 1.01 + 1l A,+= Aix1.01

-M = [2000(1.01)3-M(L012+1.01 +1)]x1.OI_M
= =
2000(1.01)4 -MG.OI-r+ 1,012+
2000(1.01
)1

r.0r)-M

- Mlr.01'r + 1.0i2 + i.01 + 1l

::
After n months, we then have

A, =

2Oo0(1.01)"

- MU

+ 1.01 + 1.012 + I.013 + ... + 1.01"-r]

thus.
I

AqB

2000(1.01)48

-Mj

+ 1.0i + 1.012+ 1.01'*... + t.01r7l

Now. the loan is repaid after 48 months, meaning that Ao*

have

0 . therefore. soh,ing for M

ne
2000(1.01)18 =
^^/f_

2000(1.01)18

-MJ

+ 1.01 + 1.01r+

1.0li+... + t.0tr7l

Mll

+1.01 + 1.01r + 1.013 + ... + 1.01"]

2ooo( t.o
1

)+s

[1+ 1.01+ 1.012+ 1.01i+... + 1.01tt]

The deriomiiiator is a G.P with
cr

= 7,r = i.01

anci n

= lE.so thar

i(11

1.Cil*i')
1.1)1

- A1 ))1t-i

The;-efore.

2ooo(1.01)rb
61.22251

Tha: is. e ach instaimeiti must be S52.61.

26ct

Thc total piricl= 51.67 x -{ii = l.-il8.l5 so thrt the interc-st paid Tirat is. shc cncls LrD Davinq S 528.16 in interest.

2-iltl.16

- l(XX) =.51t\.i6

-.ir:i.,.,':1, l, is ii-,t;;iil-llllli inrii LtllJeiSi.inCi ih.'pr0Ces: Li:Cu itl iitr'C:.:.ri',rple.:t'xtiiii.ll ,r ii.O "ri:: iitip'rs1'1n111 that 'y'ou can ulaKe Lrsr- ol technoiclgr'. We now look at hou thc TI-83 can irelp us iase the pain of lonc czilculations.

TI-83 has ii numbel of financiai functions which enable complrtational ease. In particular. it has a TVM Solver. The T\/NI Solver displays the time-value-of-money (TVM) variables. in short. siven four variable values. the TVM Solver solves for the fifth
The

f,ft*u85?u". 2: tvm-PnnL
3: Lvrr- I Z 4: Lvm_PV 5: Lvrn-N 6: Lvrr-FV TJnpv (

variable. To access the finance screen simply press

-2nd

IFINANCE]

-eXte,r

Then. it is a matter of enterin_s the 4 known pieces of information and then letting the TVM Solver do the rest.

N=l

IZ=Q PV=9
PI'1T=0

Note:

When.usin_q the

TI-83 financiai functions. you musr enter

FV=0

cash inflows (cash received) as positive numbers and cash outflows (cash paid) as negative numbers.

PzY=I

CtY=! PNT!I{II( BEGIN

of

Once you have entered your data. there are two ways in which you can then obtain the vaiue the unknown variabie.

Method

i: 2:

Place the cursor (using the anorv keys) on the TVM variable for which you want to soive. Press ALPHA ISOLVE]. The answer is computed. displayed

Methocl

in the TVM Solver screen inO stored to the appropriate TVM variabie. \ou rreed to leave this window by pressing 3g , q"y- tf . and rerurn aqain
_

to the finance mel.lu. bl, pressin_e il-nd_, IFINANCE]. Select the valiable you press ENTER-. r,r,ish to solve for and then
We nou, illustrate this process usin-e the previous example.ln this example we have the known

Linda bororved 5;2000. .'.PV = -2000 Icic = | ancl N \= 4 x 12) = 48 F\/ = 0 (i.e.. loan is fLrlll, repaid) P MT = 'l (the nronthl.r' rcpayment requir-ecl i Tirati..;.onccwchavccirtei-eci tltentfortlati()rl.wcthenmiikeuscof
Soltrcr- screeir:

quantities:

nethoc 1,,','hilerf llieT\/lr.,l

N=48 ?U=-2O@6

1/.=r

N=48

PMT=l Ft/=6 P /Y=1 vlY=!

'
BEGiN

PV= -2O@A PMT=52 .6767086

!Z=I

FV=0
P

PNT:IIII(

CtY=L

t9=t

PMT:Itil( BEGII\

Ntlticc that in tlrc second screcn thcre is a srlLlarc ncxt to the PMT variuble . This is to intlicirtc: u,irich variet'llc has ir-rst bccn calculateci
.

I:.rporrclltial attd l-,-ri:lrritir rilic !,'Unctioils

{-.'

i,1ii'l'IiR 7

7.1.5 A SPECISIL BASE (ei

Of all the expressions d f , that fbr which ct = e is knorvn as lire clpo ne ntial lirnctiun . The exponential function is also knorvn as the natural e.xponential function. ir.r rccognition of the important rolc that the value 'e" has. The iraportance of 'e'is that it occurs in n.rany applications that arise as a result o1'natural phenomena. The cprestion then rcrnains: What is 'e':l
W'e consider

how an investment can earn continr-Louslv conpounded interest:

a y'ear, the

If a principal amount $P is invested at an annual percentage rate /'. compounded once

amount in the balance,$A, afteroneyearis given by A = P + P x r have more frequent (quarterly. monthly, daily) compounding interest. For example,
rate

= P(l + r)

.We canthen

if we have quarterly compounding interest then each quarter will have an effective

of

which will be compounded 4 times. This means that by the end of the year, the balance

willbe given bv .+ =

(i * I)\4/ I

If we next consider the situation where there are n compoundings per year,
compounding becomes
,

so that the rate per

we then have that the amount in the balance after a year (i.e., after n

compoundings) is given by

A = (t . i)

If we ailow the number of compoundings n, to increase without bound, we obtain what is known as continuous compounding. We can set up a table of values for the case when r = 1.

(t

.lr I rt

(t + 1r1o = 2.593112... LU]

-:)
r

(t \
t

+:-) IUU/
1

100

=
., l00t)

2.104813...

*,OOOJ = 2.716923...
I \I l(J000 ' --) roooo/

r r

'-

From the table of values. we have that as the value of n increases. the value of / approrinrate valuo for thc number 'c'.

\ t + n/

1) "

approaches a fixecl number. This number is given bv 2.7181.1-5. . ., u'hich happens to be an

\I.\'I'IIEIL\TICS - Ilicher- L*'el {Cortr

That is.

,lY"('*;)"
a-s

=e=

2'11828...

This limiting expfession is also known

irile r'r nr:uri)ii-.

Tiris nleaus that the uatura.l base. e. is an inational number just as the nrLmber n is. Ntttice then.
the number e can be used in the same \\iav that:t is used in calculations.