Unit 5.

2: Money 5 Form 5 Mathematics Notes:

UNIT 5.2: Money 5

TERMINOLOGY:

Interest:
 Charge for using the borrowed money.
 It is the expense of the person who borrows money and an income for the person who lends
money.

Principal Amount:
 Amount of money originally borrowed (or invested) from (or to) an individual or financial
institution.
 Does not include an interest.

SIMPLE INTEREST

Simple interest is the amount of interest that is fixed and charged only on the principle amount over a
period of time (daily, monthly or yearly)

Simple interest formula:

principal× rate ×time

Simple Interest =
100

P × R ×T
S . I=
100
Where:
 S.I = is the simple interest
 P = principal amount (original amount borrowed or invested)
 R = rate of interest to be paid for a certain period of time.
 T = time/period (daily, monthly or yearly)

Example 1:

1. Ulupepe loans $10,000 from BSP bank to complete his house. Interest rate charged is 15% per annum
(p.a) for 4 years.

i. Calculate the total simple interest he will pay the bank over the 4 years.

P × R ×T
S .I=
100

10000× 15× 4
¿ =$ 6000
100

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Unit 5.2: Money 5 Form 5 Mathematics Notes:

ii. What is the total value he will pay the bank after the 4 years.

Total value= principal amount +interest

¿ $ 10,000+$ 6000
¿ $ 16 , 000

2. Stephaney invested $5000 for a period of 2 years at 10% p.a with a simple interest yearly payment.
What would be the total interest paid over the two years and the total amount (or value) she would
receive after the two years.

P × R ×T
S .I=
100

5000× 10× 2
¿ =$ 1000
100

Total value= principal amount +interest

¿ $ 5000+$ 1000
¿ $ 6 , 000

interest
The total two years period=$ 100
the
The total value recieved at the end of thetwo years=$ 6000

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Unit 5.2: Money 5 Form 5 Mathematics Notes:

COMPOUND INTEREST

Compound interest is the interest rate charged on the principal amount plus any accumulated interest.
The interest is added to the amount invested each time or period a payment is made. This means the total
amount invested continues to grow.

Example 2:
Calculate the compound interest on an investment of $2000 at 10% p.a with yearly payments. Also
calculate the total value of the interest after 3 years.

Solution:

Year 1: Amount invested=$ 2000

2000 ×10
Interest= =$ 200
100

Year 2: Amount invested=$ 2000+ $ 200=$ 2200

2200 ×10
Interest= =$ 220
100

Year 3: Amount invested=$ 2200+ $ 220=$ 2420

2420 ×10
Interest= =$ 242
100

∴ Total compound interest for 3 years=$ 200+$ 220+242=$ 662

Total Value:

Total Value =Principal Amount +Compound interest

∴ Total value=$ 2000+$ 662=$ 2662

It is very important to represent the problem in the form of a table as follows:

Period Value at Interest at Value at end

(Years) start 10% 2000 ×10
1 $ 2000+¿ $ 200=¿ $ 2200 Interest= =$ 200
100
2 $ 2200+¿ $ 220=¿ $ 2420 2200 ×10
Interest= =$ 220
100
3 $ 2420+¿ $ 242=¿ $ 2662
2420 ×10
Interest=
3 Jean Aldor=$
Prepared and compiled by Clinton100 242
Fifanty @ 2019
Unit 5.2: Money 5 Form 5 Mathematics Notes:

(total value)
Total interest
¿ $ 662

Alternative Method: The use of Compound Formula

The compound formula is:

n
A=P(1+i)

Where:
 A=compound amount
 P= principal amount
 i=rate of interest
 n=number of periods

Compound Interest:

compound interest =compound amount− principal amount

Example 3: (same question in example 2)

Calculate the compound interest on an investment of $2000 at 10% p.a with yearly payments. Also
calculate the total value of the interest after 3 years.

Solution:
Given: P=$ 2000 i=10 %=0.1 n=3 years

A=P(1+i)n
¿ 2000(1+0.1)3
¿ 2000(1.1)3
¿ 2000 ( 1.331 )
¿ $ 2662

compound interest =$ 2662−$ 2000=$ 662

interest
∴ Total compound 3 years=$ 662
the
Total value after after 3 years=$ 2662

Example 4:
$7500 was invested for 2 years at 10% p.a compounded yearly.

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Unit 5.2: Money 5 Form 5 Mathematics Notes:

i. Calculate the compound interest

From the table below: the compound interest is $1575

ii. Calculate the total value of the investment after the 2 years.
From the table the total value is $9075

Solution: Use the table to solve the above problem.

Period Value at Interest at Value at end 7500 ×10

(Years) start 10% Interest= =$ 750
100
1 $ 7500+¿ $ 750=¿ $ 8250
8250 ×10
2 $ 8250+¿ $ 825=¿ $ 9075 Interest= =$ 825
100
(total value)
Total interest
¿ $ 1575

Alternative method: The Compound Interest formula.

Solution:
Given: P=$ 7500 i=10 %=0.1 n=2 years

n
A=P(1+i)
2
¿ 7500(1+0.1)
2
¿ 7500(1.1)
¿ 7500 ( 1.21 )
¿ $ 9075

compound interest =$ 9075−$ 7590=1575

interest
∴ Total compound 2 years=$ 1575
the
Total value after after 2 years=$ 9075

COMPARING SIMPLE INTEREST AND COMPOUND INTEREST:

If $1000 is invested for 4 years at 5% per annum.

a) Calculate the simple interest.

P × R ×T
S .I=
100

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Unit 5.2: Money 5 Form 5 Mathematics Notes:

1000× 5× 4
¿ =$ 200
100

interest
∴ simple years=$ 200
4
total value after 4 years=$ 1200

b) Calculate the compound interest.

n
A=P(1+i)

4
¿ 1000(1+0.05)
4
¿ 1000(1.05)
¿ $ 1215.51
compound interest =compoind amount− principal amount
¿ $ 1215.51−$ 1000=$ 215.51

interest
∴ compound years=$ 215.51
4
total value after 4 years=$ 1215.51

By comparing the two types of interest:

 If we have the same principal amount, the same rate and the same period of time, compound
interest yields more interest than simple interest as illustrated from the above examples.
 Compound interest - $215.51
 Simple interest - $200 (that is $15.51 less than interest yielded by compound interest).

6 Prepared and compiled by Clinton Jean Aldor Fifanty @ 2019

Unit 5.2: Money 5 Form 5 Mathematics Notes:

DEPRECIATIONS

Many things lose their value with time or as they grow older. Machines and tools wear out. Cars, trucks,
buses, boats aeroplanes etc. lose value.

Definition:
Depreciation is the reduction in the value of an asset over time due in particular to wear and tear.

Business people often use straight line depression which is similar to simple interest.

Example:
Calculate the total depreciation of $5000 at 10% p.a straight line depreciation over 3 years.

5000 ×10 ×3
D= =$ 1500(Total depreciation)
100

value after 3 years=$ 5000−$ 1500=$ 3500

For fixed figure, straight – line depreciation reduces the value of an asset much faster than reducing the
balance depreciation.

NB: In mathematics we use reducing the balance depreciation.

Example:
A car valued at $5000 depreciates at 10% p.a on the balance at the beginning of the year. Calculate the
value after 3 years and the amount lost due to depreciation.

Solution:

Year 1: Value at start=$ 5000

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Unit 5.2: Money 5 Form 5 Mathematics Notes:

5000× 10
Depreciation= =$ 500
100

Year 2: Value at start=$ 5000−$ 500=$ 4500

4500 ×10
Depreciation= =$ 450
100

Year 3: Value at start=$ 4500−$ 450=$ 4050

40500 ×10
Depreciation= =$ 405
100

∴ Total depreciation=$ 500+ $ 450+405=$ 1355

Value after 3 years=$ 5000−$ 1355=$ 3645

Use of Table:

Period Value at Depreciation Value at end 5000× 10

(Years) start at 10% Depreciation= =$ 500
100
1 $ 5000−¿ $ 500=¿ $ 4500
4500 ×10
2 $ 4500−¿ $ 450=¿ $ 4050 Depreciation= =$ 450
100
3 $ 4050−¿ $ 405=¿ $ 3645 4050 ×10
(total value) Depreciation= =$ 405
100
Total
depreciation
¿ $ 1355

Alternative Method (Reducing Balance depreciation formula):

The formula is:

n
D=P (1−i)
Where:
 D=Depreciated amount
 P= principal amount
 i=rate of interest
 n=number of period

Total Depreciation:

Total depreciation=depreciation amount− principal amount

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Unit 5.2: Money 5 Form 5 Mathematics Notes:

Example:
A car valued at $5000 depreciates at 10% p.a on the balance at the beginning of the year. Calculate the
value after 3 years and the amount lost due to depreciation.

Solution:
Given: P=$ 5000 i=10 %=0.1 n=3 years

D=P (1−i)n
¿ 5000(1−0.1)3
¿ 5000(0.9)3
¿ 5000 ( 0.729 )
¿ $ 3645

Total depreciation=$ 5000−$ 3645=$ 1355

∴ Total depreciation=$ 1355

Value after 3 years=$ 3645
NOTE:
The value after the period of depreciation plus the total depreciation should add up to the starting value
(or the principal amount).

Example: value after 3 years+total depreciation= principal amount

$ 3645+$ 1355=$ 5000

Example:
1. A pick – up – truck valued at $80,000 after 3 years at 20% p.a. calculate the depreciation and the
value at the end of the 3 years.

Solution:

Year 1: Value at start=$ 80,000

80,000 ×20
Depreciation= =$ 16000
100

Year 2: Value at start=$ 80,000−$ 16,000=$ 64,000

64,000 ×20
Depreciation= =$ 12800
100

Year 3: Value at start=64,000 $−$ 12800=$ 51,200

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Unit 5.2: Money 5 Form 5 Mathematics Notes:

51,000× 20
Depreciation= =$ 10,240
100

∴ Total depreciation=$ 16,000+ $ 12,800+ $ 10,240=$ 39,040

Value after 3 years=$ 80,000−$ 39,040=$ 40,960

Use of Table:

Period Value at Depreciation Value at end 80,000 ×20

(Years) start at 20% Depreciation= =$ 16,000
100
1 $ 80,000−¿ $ 16,000=¿ $ 64,000
64,000 ×20
2 $ 64,000−¿ $ 12,800=¿ $ 51,200 Depreciation= =$ 51,200
100
3 $ 51,000−¿ $ 10,240=¿ $ 40,960 51,200× 20
(total value) Depreciation= =$ 10,240
100
Total
depreciation
¿ $ 39,040

∴ Total depreciation=$ 16,000+ $ 12,800+ $ 10,240=$ 39,040

Value after 3 years=$ 80,000−$ 39,040=$ 40,960

Alternative Method: Reducing balance depreciation.

Solution:
Given: P=$ 80,000 i=20 %=0.2 n=3 years

D=P (1−i)n
¿ 80,000(1−0.2)3
¿ 80,000( 0.8)3
¿ 80,000 ( 0.512 )
¿ $ 40,960

Total depreciation=$ 80,000−$ 40,960=$ 39,040

∴ Total depreciation=$ 39,040

Value after 3 years=$ 40,960

2. Aaron bought a car worth $6000.after using for 2 years he sold it at 25% depreciation p.a.
i. What is the total depreciation?
ii. What is the new value of the car after?

Solution:
Given: P=$ 6000 i=25 %=0.25 n=2 years

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Unit 5.2: Money 5 Form 5 Mathematics Notes:

D=P (1−i)n
¿ 6000(1−0.25)2
¿ 6000(0.75)2
¿ 6000 ( 0.5625 )
¿ $ 3375

Total depreciation=$ 6000−$ 3375=$ 2625

∴ Total depreciation=$ 2625

Value after 2 years=$ 3375

EXCHANGE RATE

Exchange Rate:

Example:
Below is a copy of the exchange rate for the month of February 9 in 1982.

COUNTRY RATE ¿ CURRENCY

USA 1.1125 Dollar $
UK 0.5952 Pound £
Australia 1.0173 Dollar $
Fiji 1.0085 Dollar $
Hong Kong 6.537 Dollar $
New Zealand 1.3938 Dollar $
P.N.G 0.7834 Kina K
Singapore 2.339 Dollar $
Japan 260.24 Yen Y
China 2.029 Yuan Y

11 Prepared and compiled by Clinton Jean Aldor Fifanty @ 2019

Unit 5.2: Money 5 Form 5 Mathematics Notes:

a) Change $ 400 U.S to Solomon Island dollars.

Solomon Island=USA

1=1.1125

x=400

x 1.1125=400

400
x=
1.1125
x=359.5505

∴ $400 US is equivalent to $359.5505 SB

b) Mathew after returning from Australia has $600 Aus. dollars. On arrival he wants to change it to
Solomon Island dollars. What is the amount Mathew expected in Solomon Island dollars?

Solomon Island= Australian

1=1.0173

x=600

x 1.0173=600

600
x=
1.0173

x=589.7965

∴ Mathew should receive $589.7965 SB

c) Janix has a scholarship to study in Fiji. She wants to exchange her $1000 SB to Fijian dollars. What is
the amount in Fijian dollars she would get?

Solomon Island $=Fiji Island $

1=1.0085

1000=x

x=1008.50

Janix should have $ 1008.50 Fijian dollars

12 Prepared and compiled by Clinton Jean Aldor Fifanty @ 2019

Unit 5.2: Money 5 Form 5 Mathematics Notes:

13 Prepared and compiled by Clinton Jean Aldor Fifanty @ 2019