Annuities, Loans and Depreciation
A senior study guide to the financial models met in senior maths: straight-line and declining-balance depreciation, the future and present…
- Difficulty
- Level 3 · Challenge
- Time
- 30 min
A senior maths worksheet on how a loan is paid off: building a month-by-month repayment table, writing the recurrence relation, calculating the repayment, total interest and the balance owing part-way through, finding how many repayments are needed, and seeing how extra repayments, lump sums and rate rises change a loan. Finishes with an extended car loan problem. Full working is given for every answer.
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Curriculum: New Zealand Curriculum. We show specific outcome codes only where they have been verified against the official curriculum document.
Completed: Reducing-Balance Loans: Repayment Tables and Extra Repayments
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Year 13 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 55 minutes for 15 questions. Short, regular sessions work best: two or three a week beats one long one.
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Show your working. Give dollar amounts to the nearest cent.
In a reducing-balance loan, interest is charged each period on the balance still owing, then the repayment is subtracted. A repayment table tracks each period: opening balance, interest = balance × r, principal repaid = repayment − interest, closing balance = opening balance + interest − repayment.
As a recurrence relation: Vₙ₊₁ = (1 + r)Vₙ − M, with V₀ = the amount borrowed.
Worked example. $5000 at 12% p.a. compounded monthly (r = 0.01), repaid at $300 per month. Month 1: interest = $50.00, principal = $250.00, balance = $4750.00. Month 2: interest = $47.50, principal = $252.50, balance = $4497.50.
The regular repayment for a loan of P over n periods at rate r per period is M = [frac Pr/1 − (1 + r)[sup −n]]. Round M to the cent, then total interest = M × n − P.
The balance owing after k repayments is Vₖ = P(1 + r)[sup k] − M × [frac (1 + r)[sup k] − 1/r]: what the loan would have grown to, minus what the repayments have grown to.
Worked example. $10 000 at 12% p.a. compounded monthly over 1 year: M = = $888.49, and total interest = 888.49 × 12 − 10 000 = $661.88.
To find how many repayments are needed, set Vₙ = 0 and solve: (1 + r)n (M − Pr) = M, so n = [frac ln(M ÷ (M − Pr))/ln(1 + r)]. Round up: the last repayment is smaller and equals the remaining balance plus one period of interest.
Extra repayments and lump sums reduce the balance early, so every later period is charged less interest. A rate rise increases the repayment needed to finish on time.
Worked example. $10 000 at 12% p.a. compounded monthly, repaid at $500 per month: n = = 22.4…, so 23 repayments (22 full ones and a smaller final one).
Preview — the PDF contains the full resource and answer sheet.
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