# Chapter 22

Topics: Compound interest, Interest, Investment Pages: 26 (3732 words) Published: February 7, 2013
P1: FXS/ABE
P2: FXS
9780521740517c22.xml
CUAU031-EVANS

October 20, 2011

14:38

CHAPTER

22

MODULE 4

Revision:
mathematics
22.1 Multiple-choice questions
1 Bennet invested \$15 000 for 3 years. He earned 6.5% per annum interest, compounding annually. The value of his investment at the end of three years, to the nearest dollar, is: A \$15 004

B \$18 119

C \$18 220

D \$17 925

E \$35 850

2 Chen purchased a second-hand car for \$20 250. She paid a deposit of \$3000 and made repayments of \$600 per month over 3 years. The total amount of interest Chen paid is: A \$350

B \$2350

C \$4350

D \$6350

E \$7250

3 Suppose that Chen was offered an alternative repayment scheme, where she still paid a deposit of \$3000 but a ﬂat rate of interest of 10% per annum for 3 years on the outstanding balance. The total amount of interest paid now would be:

A \$275

B \$1725

C \$2025

4 The following is an extract from a
bank account showing all
transactions for the period
1 April to 30 June.

Date
1 April
30 April
21 May
28 May
30 Jun
1 July

D \$5175
Credit

E \$6075
Debit

Interest

\$7260
\$1824
\$1380
\$1730

Balance
\$2270
\$9350
\$7706
\$6326
\$8056

Interest is calculated at a rate of 3% per annum on the minimum monthly balance and paid into the account quarterly. Interest for the April, May, June quarter is paid on 1 July. The amount of interest paid on 1 July is closest to:

A \$37.31

B \$44.87

C \$49.19

608

D \$447.66

ISBN: 9781107655904
© Peter Jones, Michael Evans, Kay Lipson 2012
Photocopying is restricted under law and this material must not be transferred to another party

E \$590.28
Cambridge University Press

P1: FXS/ABE
P2: FXS
9780521740517c22.xml
CUAU031-EVANS

October 20, 2011

14:38

Chapter 22 — Revision

609

A \$353.82

B \$397.17

C \$629.88

D \$1362.07 E \$4256.77
[VCAA pre 2006]

6 For a reducing balance loan with quarterly repayments, which one of the following statements is always true?
A
B
C
D
E

The amount of interest paid on the loan remains constant each quarter. The amount of principal repaid each quarter increases with each payment made. Every instalment reduces the principal by the same amount.

By halfway through the loan period, half the principal has been repaid. The amount of interest paid is approximately double that paid if the loan had been calculated using simple interest.
[VCAA pre 2006]

Revision

5 A loan of \$80 000 is to be paid back over 20 years at an interest rate of 7.2% per annum on a reducing monthly balance. The monthly repayment will be closest to:

7 A company purchased a machine for \$5000 on the ﬁrst of January one year, and depreciates its value at a rate of 20% of its purchase price per year. When the book value falls below \$1500 the company will write it off. The length of time that the machine will be in use is closest to:

A 2 years

B 2 1 years
2

C three years

D 3 1 years
2

E four years

10
0

10
0

10
0
012345
Year

Value (\$000s)

Value (\$000s)

E

20

20
15
10
5
0
012345
Year

012345
Year

012345
Year

D

C

20

Value (\$000s)

B

20

Value (\$000s)

A

Value (\$000s)

8 A printing machine is bought for \$20 000. Using ﬂat rate depreciation, its value after 5 years will be \$4000. Which of the following graphs best represents the value of the machine at the end of each year for this 5-year period?

20
10
0
012345
Year

[VCAA pre 2006]

9 Three thousand dollars is placed in an investment account compounding monthly at an interest rate of 6% per annum. The balance in dollars, after n years, is given by: A 3000 × 1.005n
D 3000 × 1.0612n

B 3000 × 1.00512n
E 3000 × .06n

C 3000 × 1.06n
[VCAA pre 2006]

10 Tahlia wants to earn \$2400 interest on a 3-year investment at 2.5% per annum simple interest. The amount she needs to invest is closest to:
A \$288 000 B \$7200

C \$96 000

D...