Introduction
We have to work with money every day. While balancing your checkbook or calculating your monthly expenditures on espresso requires only arithmetic, when we start saving, planning for retirement, or need a loan, we need more mathematics. Any person with a bank account, credit card or bank loan will come across aspects of simple interest and compound interest. However, many people have difficulty in distinguishing between the two types of interest and how they should be calculated.
Watch the video below on how simple interest and compound interest is defined.
Task
In order to complete the task , it is required from you to watch the videos carefully and also read the required knowledge.
Watch the videos below on how simple interest and compound interest is explained with give examples.
Required Terminology
- Interest is the amount of money paid for the use of money borrowed.
- Interest rate is the percentage of the total sum of money that is paid in interest.
- Per annum is the Latin term meaning 'per year' and is often abbreviated as p.a.
- Interest per month= interest rate per year ÷ 12
- Interest per day= interest rate per year÷ 365 (or 366 in a leap year)
- Simple interest is a percentage of the original amount. This set amount is added each time interest is added.
- Compound interest is different because the amount added each time depends not only on the original amount but also on the amounts of interest already added.
Process
Instructions
Read questions carefully before answering them
Write neatly on a page with a cover page
You will need use of a scientific calculator
Draw graphs accurately
Use the given formulas
Submit 1st September
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Formula Simple interest - A=P(1+i.n) Compound interest- A=P(1+i)ñ
A- future value P- principle amount i- interest rate n- time period or duration
NB- in this case ñ stands for exponential form |
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Question 1- Multiple choice
1. Which type of interest is calculated on the principle or original amount only?
a.) Compound interest
b.) Interest per month
c.) Simple interest
d.) Interest per day (2)
2. Interest can be calculated
a.) per year
b.) per month
c.) per day
d.) all of the above (2)
3. True or False
The variable 'i' means initial amount
a.) True
b.) False (2)
4. Which type of interest depends not only on the original amount but also on the amounts of interest already added?
a.) Compound interest
b.) Interest per month
c.) Simple interest
d.) Interest per day (2)
5. The interest rate is known as
a.) the amount of money borrowed.
b.) the percentage of the total sum of money that is paid in interest.
c.) the amount of money paid for its use.
d.) none of the above. (2)
total marks (10)
Question 2 - Calculation
1. Mr Khumalo wants his eldest daughter Thembeka to study medicine at Stellenbosch Univeristy. Unfortunately, she missed the deadline of NSFAS bursary scheme. Mr Khumalo then decide to take a loan of R95 000 at Capitec Bank. They charge him an annual interest rate of 11,3%.Calculate how much interest he have pay after 2 years. (4)
2. Robert is a small business owner. He is running a tuckshop at his home for the past 18 months. He is decided to open a fixed savings account for his profit earnings and deposited R10 000. He got an offer of earning an interest rate of 5% per annum.
a.) Calculate how much interest he will earn in 3 months. (5)
b.) Calculate the total amount of savings he will have after 4 years. (4)
3. Fatima deposits R5 500 into a savings account and earns an 9% compound interest annually. she decides that she will be leaving the money for 5 years. What her total amount be at the end of the period. (4)
4. Jody invested R12 750 into a savings account for the period of 2 years. He earned an interest rate of 10,2% annually. How much interest did Jody receive after the first 6 months of his investment? (5)
5. Draw a graph to compare simple interest and compound interest by using the same given figures.
P- R4 500
i- 3,7% per annum
n- 4 years (8)
total marks(30)
Evaluation
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QUESTIONS |
MARKS |
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Question 1 |
10 |
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Question 2 |
30 |
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Total |
40 |
Marking guideline
Question 1 - Write only the letter
Question 2 - Do calculation step by step and draw graph in pencil.
Conclusion
You need to study and understand the content explained to you in above about simple interest and compound interest.
Also know how to calculate both types of interest.
Write an essay of 80-100 words on what you have learnt and how it will benefit you when you enter adult world. Use the video below as a guide.