Annuities, Loans and Depreciation
An HSC/VCE-style study guide to the financial models met in senior maths: straight-line and declining-balance depreciation, the future and…
- Difficulty
- Level 3 · Challenge
- Time
- 30 min
A senior maths worksheet on comparing investments: compound interest with different compounding periods, solving for the present value, time and rate, converting nominal rates to effective annual rates, and allowing for inflation with future costs, values in today's dollars and real rates of return. Finishes with an extended problem comparing three savings options. Full working is given for every answer.
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Curriculum: Australian Curriculum. We show specific outcome codes only where they have been verified against the official curriculum document.
Completed: Compound Interest: Effective Rates and Inflation
Year 12 students (typically ages 17–18) working on financial mathematics. It is pitched at level 3 · challenge.
Yes. The PDF includes a full answer sheet with the working for every question. You can also view the answers online.
About 50 minutes for 16 questions. Short, regular sessions work best: two or three a week beats one long one.
No. Click Download Free PDF and it opens immediately. It is free for personal, classroom and homeschool use.
Try Reducing-Balance Loans: Repayment Tables and Extra Repayments.
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Show your working. Give dollar amounts to the nearest cent.
A = P(1 + r)[sup n], where P is the principal, r is the interest rate per compounding period (as a decimal) and n is the number of compounding periods. For a nominal rate of R% p.a. compounded m times a year, r = and n = m × years.
Rearrange for other unknowns: P = , n = and r = (A ÷ P)1/n − 1.
Worked example. $5000 at 4% p.a. compounded quarterly for 2 years: r = 0.01, n = 8, A = 5000 × 1.018 = $5414.28, so the interest is $414.28.
Nominal rates with different compounding periods cannot be compared directly. The effective annual rate is the single yearly rate that gives the same growth: i = (1 + [frac R/m])[sup m] − 1, where R is the nominal annual rate (as a decimal) and m is the number of compounding periods per year.
Worked example. 12% p.a. compounded monthly: i = 1.0112 − 1 = 0.126825…, so the effective rate is 12.68% p.a. — the same as 12.68% compounded once a year.
Inflation is the general rise in prices over time. With an average inflation rate f per year, a cost C today becomes C(1 + f)[sup n] after n years, and an amount A received in n years is worth [frac A/(1 + f)[sup n]] in today's dollars.
The real rate of return measures growth in buying power: real rate = [frac 1 + nominal rate/1 + inflation rate] − 1. A quick estimate is nominal rate − inflation rate.
Worked example. A $40 bill today with 2% inflation: in 3 years it costs 40 × 1.023 = $42.45.
Preview — the PDF contains the full resource and answer sheet.
An HSC/VCE-style study guide to the financial models met in senior maths: straight-line and declining-balance depreciation, the future and…
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