MATHEMATICS Financial Mathematic

TOPIC 7: FINANCIAL MATHEMATICS

1. Find the simple interest of $1000

(a) at 5% for one year
(b) at 6% for 8 months

2. At what rate of simple interest p.a. will

(a) $2000 amount to $2110 in one year?
(b) $720 amount to $744 in 10 months?

3. Find the accumulated amount of

(a) $480 compounded annually at 14% p.a. over 5 years
(b) $1240 compounded annually at 11.5% p.a. over 12 years

4. How much is to be invested now at 10% p.a. compound interest per annum if after 5
years the investment is to reach a target sum of $30,000.

5. $10,000 was compounded annually at 12.5% p.a. and amounted to $52,015.80. How
many years did it take?

6. Find the accumulated amount of $1000 at the end of year 5 if interest is

8% p.a. for the first year
8.5% p.a. for the second year
9% p.a. for the third and fourth year
8% p.a. in the fifth year.

7. Find the accumulated amount if

(a) $300 is invested at 5.5% p.a. compounded yearly for 3 years?
(b) $500 is invested at 7% p.a. compounded semi-annually for 4 years?
(c) $700 is invested at 12% p.a. compounded monthly for 5 years?
(d) $8400 is invested at 4% p.a. compounded quarterly for 5 years?

8. A company will have to spend $300,000 on new plant in 4 years from now. Currently
investment rates are at a nominal 10% p.a.
(a) What single sum should now be invested, if compounding is semi-annually?
(b) What is the effective rate?

9. Mr. David borrows $20,000 for 3 years. He has three offers:

Offer A: 5% interest rate p.a. compounded quarterly
3
Offer B: 5 % interest rate p.a. compounded annually
8
1
Offer C: 5 % simple interest p.a.
2

Which offer should he accept?

10. An insurance fund invests $500,000 at the beginning of each year for 5 years at an
interest rate of 8.5% p.a. compounded semi-annually. Calculate the total amount in
the fund at the end of year 5.

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11. Find the present value of $300 due in six years’ time at 8% p.a. compounded
annually.
12. Find the present value of $700 due in five years’ time at 6% p.a. compounded
monthly.

13. How much of money should be invested now at 10% per year for 5 years so that the
money will be $100,000 when the interest is compounded
(a) annually
(b) semi-annually and
(c) quarterly?

14. Find the effective rate of interest for money invested at 6% compounded monthly?

15. A bank pays interest on saving accounts at a rate of 8% compounded daily. Find the
effective rate if the bank uses 360 days.

16. Mr. David deposited $20,000 in a bank that paid an interest rate at 8% per annum
compounded annually for the first four years, and followed by an interest rate at 6%
per annum compounded quarterly for the next two years. Find the interest earned over
a six-year period.

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MATHEMATICS Financial Mathematic

Answer:

1. (a) $50 (b) $40

2. (a) 5.5% (b) 4%
3. (a) $924.20 (b) $4578.47
4. $18,627.64
5. 14 years
6. $1503.59
7. (a) $352.27 (b) $658.4 (c) $1271.69 (d) $10,249.6
8. (a) $203,051.81 (b) 10.25%
9. Offer A
10. $3,231,478.78
11. $189.05
12. $518.96
13. (a) $62,092.13 (b) $61,391.33 (c) $61,027.09
14. 6.17%
15. 8.33%
16. $30,651.61

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