APPLICATIONS AND

INTERPRETATIONS
HIGHER LEVEL

FINANCIAL MATH
PRACTICE SET-2
Code: AIHL1

SHAMS SIDDIQUI
 UNIT 1 ROADMAP
 LECTURE TIME( 14 TO 15 CLASSES) :

1.1 ARITHMETIC SEQUENCE AND SERIES (summation notation)

1.2 GEOMETRIC SEQUENCES AND SERIES (mixed ap and gp)

1.3 FINANCIAL MATH (investments, depreciation, loans and

annuities)

1.4 EXPONENTS AND LOGARITHMS (definition and laws)

1.5 COMPLEX NUMBERS-1 (definition, algebra and representation)

1.6 COMPLEX NUMBERS-2 (polar form, Euler’s form and geometry)

1.7 MATRICES-1 (definition, algebra and inverse)

1.8 MATRICES-2 (eigenvalues, eigenvectors and diagonalisation)

 Mock tests :

Mock 1 : P1,P2 and P3

Mock 2 : P1,P2 and P3

Mock 3 : P1,P2 and P3

 Challenger series questions :

100 mixed P1,P2 and P3 style questions

Problems

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1) [Video solution:]
In this question, give all answers to two decimal places.
Bryan decides to purchase a new car with a price of € 14000, but cannot
afford the full amount. The car dealership offers two options to finance a
loan.
Finance option A:
A 6 year loan at a nominal annual interest rate of 14 % compounded
quarterly. No deposit required and repayments are made each quarter.
(a.i) Find the repayment made each quarter. [3]
([Link]) Find the total amount paid for the car. [2]
([Link]) Find the interest paid on the loan. [2]
Finance option B:
A 6 year loan at a nominal annual interest rate of r % compounded
monthly. Terms of the loan require a 10 % deposit and monthly
repayments of € 250.
(b.i) Find the amount to be borrowed for this option. [2]
([Link]) Find the annual interest rate, r . [3]
(c) State which option Bryan should choose. Justify your answer. [2]
(d) Bryan's car depreciates at an annual rate of 25 % per year.
Find the value of Bryan's car six years after it is purchased.
[3]

2) [Video solution:]
Sophia pays $ 200 into a bank account at the end of each month. The
annual interest paid on money in the account is 3.1 % which is
compounded monthly.
(a) Find the value of her investment after a period of 5 years. [3]
The average rate of inflation per year over the 5 years was 2 %.
(b) Find an approximation for the real interest rate for the money invested
in the account.
[2]
(c) Hence find the real value of Sophia's investment at the end of 5 years.
[2]

3) [Video solution:]

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 Yejin plans to retire at age 60 . She wants to create an annuity fund, which
will pay her a monthly allowance of $ 4000 during her retirement. She
wants to save enough money so that the payments last for 30 years. A
financial advisor has told her that she can expect to earn 5% interest on
her funds, compounded annually.
(a) Calculate the amount Yejin needs to have saved into her annuity fund,
in order to meet her retirement goal. [3]
(b) Yejin has just turned 28 years old. She currently has no retirement
savings. She wants to save part of her salary each month into her annuity
fund.
Calculate the amount Yejin needs to save each month, to meet her
retirement goal. [3]

4) [Video solution:]
Sophie is planning to buy a house. She needs to take out a mortgage for
$ 120000. She is considering two possible options.
Option 1: Repay the mortgage over 20 years, at an annual interest rate of
5%, compounded annually.
Option 2: Pay $1000 every month, at an annual interest rate of 6%,
compounded annually, until the loan is fully repaid.
(a.i) Calculate the monthly repayment using option 1. [2]
([Link]) Calculate the total amount Sophie would pay, using option 1. [2]
(b.i) Calculate the number of months it will take to repay the mortgage
using option 2. [3]
([Link]) Calculate the total amount Sophie would pay, using option 2. [2]
Give a reason why Sophie might choose
(c.i) option 1. [1]
([Link]) option 2. [1]
Sophie decides to choose option 1 . At the end of 10 years, the interest
rate is changed to 7 % , compounded annually.
(d.i) Use your answer to part (a)(i) to calculate the amount remaining on
her mortgage after the first 10 years. [2]
([Link]) Hence calculate her monthly repayment for the final 10 years. [2]

5) [Video solution:]

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 Paul wants to buy a car. He needs to take out a loan for $ 7000. The car
salesman offers him a loan with an interest rate of 8 % , compounded
annually. Paul considers two options to repay the loan.
Option 1: Pay $200 each month, until the loan is fully repaid
Option 2: Make 24 equal monthly payments.
Use option 1 to calculate
(a.i) the number of months it will take for Paul to repay the loan. [3]
([Link]) the total amount that Paul has to pay. [2]
Use option 2 to calculate
(b.i) the amount Paul pays each month. [2]
([Link]) the total amount that Paul has to pay. [2]
Give a reason why Paul might choose
(c.i) option 1. [1]
([Link]) option 2. [1]

6) [Video solution:]
Maan deposited $ 100000 into a savings account with a nominal annual
interest rate of I % compounded monthly. At the end of the eighth year,
the amount in the account had increased to $ 150000.
(a) Find the value of I . [3]
Maan withdraws the $ 150000 and places it in an annuity, earning a
nominal annual interest rate of 6.1 % compounded monthly. At the end of
each month, Maan will receive a payment of $ 1000.
(b) Find the amount of money remaining in the annuity at the end of 10
years. Express your answer to the nearest dollar. [3]

7) [Video solution:]
Imani invests $ 3000 in a bank that pays a nominal annual interest rate of
1.25 % compounded monthly.
(a) Calculate the amount of money Imani will have in the bank at the end
of 6 years. Give your answer correct to two decimal places. [3]
(b) Calculate the number of months it takes until Imani has at least $ 3550
in the bank.
Imani uses the $ 3550 as a partial payment for a used car costing $ 22000.
For the remainder she takes out a loan from a bank. [2]
(c) Write down the amount of money that Imani takes out as a loan. [1]

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 The loan is for 8 years and the nominal annual interest rate is 12.6 %
compounded monthly. Imani will pay the loan in fixed monthly instalments
at the end of each month.
(d) Calculate the amount, correct to the nearest dollar, that Imani will
have to pay the bank each month. [3]

8) [Video solution:]
Ruben wants to buy a car for a price of 285000 South African rand (ZAR).
He goes to a bank to get a loan to buy the car. To be eligible for the loan,
Ruben must make an initial down payment equal to 25 % of the price of
the car.
The bank offers him a 5 -year loan for the remaining balance, with a 4.5 %
nominal interest rate per annum, compounded monthly. Ruben will pay
the loan in fixed payments at the end of each month.
(a.i) Find the original amount of the loan after the down payment is paid.
Give the exact answer. [2]
([Link]) Calculate Ruben's monthly payment for this loan, to two decimal
places. [3]
(b) Using your answer from part (a)(ii), calculate the total amount Ruben
will pay over the life of the loan, to the nearest ZAR. Do not include the
initial down payment. [2]
Ruben would like to repay the loan faster and increases his payments such
that he pays 4600 ZAR each month.
(c) Find the total number of monthly payments he will need to make to
pay off the loan.
[2]
This strategy will result in Ruben's final payment being less than 4600
ZAR.
(d) Determine the amount of Ruben's final payment, to two decimal
places. [4]
(e) Hence, determine the total amount Ruben will save, to the nearest
ZAR, by making the higher monthly payments. [3]

9) [Video solution:]
Tiffany wants to buy a house for a price of 285000 US Dollars (USD). She
goes to a bank to get a loan to buy the house. To be eligible for the loan,

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 Tiffany must make an initial down payment equal to 15 % of the price of
the house.
The bank offers her a 30 -year loan for the remaining balance, with a 4 %
nominal interest rate per annum, compounded monthly. Tiffany will pay
the loan in fixed payments at the end of each month.
(a.i) Find the original amount of the loan after the down payment is paid. Give
the exact answer.
[2]
([Link]) Calculate Tiffany's monthly payment for this loan, to two decimal places.
[3]
(b) Using your answer from part (a)(ii), calculate the total amount Tiffany will
pay over the life of the loan, to the nearest dollar. Do not include the initial
down payment. [2]
Tiffany would like to repay the loan faster and increases her payments
such that she pays 1300 USD each month.
(c) Find the total number of monthly payments she will need to make to
pay off the loan.
[2]
This strategy will result in Tiffany's final payment being less than 1300
USD.
(d) Determine the amount of Tiffany's final payment, to two decimal
places. [4]
(e) Hence, determine the total amount Tiffany will save, to the nearest
dollar, by making the higher monthly payments. [3]

10) [Video solution:]

On 1 January 2022, Mina deposited $ 1000 into a bank account with an
annual interest rate of 4 %, compounded monthly. At the end of January,
and the end of every month after that, she deposits $ 100 into the same
account.
(a) Calculate the amount of money in her account at the start of 2024.
Give your answer to two decimal places.
(b) Find how many complete months, counted from 1 January 2022, it will
take for Mina to have more than $ 5000 in her account.

11) [Video solution:]

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 Angel has $ 520 in his savings account. Angel considers investing the
money for 5 years with a bank. The bank offers an annual interest rate of
1.2 % compounded quarterly.
(a) Calculate the amount of money Angel would have at the end of 5 years
with the bank. Give your answer correct to two decimal places.
Instead of investing the money, Angel decides to buy a phone that costs
$ 520. At the end of 5 years, the phone will have a value of $ 30. It may be
assumed that the depreciation rate per year is constant.
(b) Calculate the annual depreciation rate of the phone.

12) [Video solution:]

On 1 December 2022, Laviola invests 800 euros (EUR) into a savings
account which pays a nominal annual interest rate of 7.5 % compounded
monthly. At the end of each month, Laviola deposits an additional EUR 500
into the savings account.
At the end of k months, Laviola will have saved enough money to
withdraw EUR 10000.
+¿¿
(a) Find the smallest possible value of k , for k ∈ Z . [4]
(b) For this value of k , find the interest earned in the savings account.
Express your answer correct to the nearest EUR. [3]

13) [Video solution:]

Juliana plans to invest money for 10 years in an account paying 3.5 %
interest, compounded annually. She expects the annual inflation rate to be
2 % per year throughout the 10 -year period.
Juliana would like her investment to be worth a real value of $ 4000 ,
compared to current values, at the end of the 10-year period. She is
considering two options.
Option 1: Make a one-time investment at the start of the 10-year period.
Option 2: Invest $ 1000 at the start of the 10 -year period and then invest
$ x into the account at the end of each year (including the first and last
years).
(a) For option 1, determine the minimum amount Juliana would need to
invest. Give your answer to the nearest dollar. [3]
(b) For option 2, find the minimum value of x that Juliana would need to
invest each year. Give your answer to the nearest dollar. [3]

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14) [Video solution:]
In this question, give all answers correct to 2 decimal places.
Raul and Rosy want to buy a new house and they need a loan of 170000
Australian dollars (AUD) from a bank. The loan is for 30 years and the
annual interest rate for the loan is 3.8 % , compounded monthly. They will
pay the loan in fixed monthly instalments at the end of each month.
(a) Find the amount they will pay the bank each month. [3]
(b.i) Find the amount Raul and Rosy will still owe the bank at the end of
the first 10 years.
[3]
([Link]) Using your answers to parts (a) and (b)(i), calculate how much
interest they will have paid in total during the first 10 years. [3]

15) [Video solution:]

Roger buys a new laptop for himself at a cost of £ 495. At the same time,
he buys his daughter Chloe a higher specification laptop at a cost of £ 2200
.
It is anticipated that Roger's laptop will depreciate at a rate of 10 % per
year, whereas Chloe's laptop will depreciate at a rate of 15 % per year.
(a) Estimate the value of Roger's laptop after 5 years. [2]
Roger and Chloe's laptops will have the same value k years after they
were purchased.
(b) Find the value of k . [2]
(c) Comment on the validity of your answer to part (b). [1]

16) [Video solution:]

Give your answers in parts (a), (d)(i), (e) and (f) to the nearest dollar.
Daisy invested 37000 Australian dollars (AUD) in a fixed deposit account
with an annual interest rate of 6.4 % compounded quarterly.
(a) Calculate the value of Daisy's investment after 2 years. [3]
After m months, the amount of money in the fixed deposit account has
appreciated to more than 50000 AUD.
(b) Find the minimum value of m , where m ∈ N . [4]
Daisy is saving to purchase a new apartment. The price of the apartment
is 200000 AUD.

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 Daisy makes an initial payment of 25 % and takes out a loan to pay the
rest.
(c) Write down the amount of the loan. [1]
The loan is for 10 years, compounded monthly, with equal monthly
payments of 1700 AUD made by Daisy at the end of each month.
For this loan, find
(d.i) the amount of interest paid by Daisy. [2]
([Link]) the annual interest rate of the loan. [3]
After 5 years of paying off this loan, Daisy decides to pay the remainder in
one final payment.
(e) Find the amount of Daisy's final payment. [3]
(f) Find how much money Daisy saved by making one final payment after
5 years. [3]

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