UCT MAM1110F Week 2 Tutorial Exercises
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masondombongenisfundoUCT MAM1110F Week 2 Tutorial Exercises
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Powered by AITo find the present value, one discounts the future amount by dividing it by (1 plus the interest rate compounded over the number of periods). For instance, R16,000earns 6% over 9 months, then the present value is R16,000/(1+0.06*9/12) resulting in approximately R15,092.45, considering the length of time and type of interest (simple or compound).
The percentage reduction can be calculated by first determining the equivalent price per item when buying three items and paying for only two. The reduction is (1 item free / 3 items) which equals approximately 33.33%. This percentage reduction is independent of the price of the item, as the offer always results in one free item for every three bought, irrespective of the individual item's cost.
Using the reducing balance method with initial depreciation at 20% p.a. for 2 years, then 18% and 16% the next two years, the depreciated value is found by applying successive depreciations. The equipment value after 4 years is approximately R9,216 by calculating the reduced percentages cumulatively through four successive years: Value = R20,000 * (0.8) * (0.8) * (0.82) * (0.84).
To convert an annual rate compounded monthly to one compounded semi-annually, one must first calculate the effective annual rate equivalent, then convert this into the semi-annual compounding rate. This involves using the formula (1 + r/n)^(nt)= (1+R/m)^(mt), where n and m are the compounding frequencies. For a 10% annual rate, the semi-annual equivalent would approximate 10.25%.
The monthly instalment amount is calculated using the formula for a compounded interest loan repayment. Here, it would be M = P[r(1+r)^n] / [(1+r)^n - 1], where P = R500,000, r = 0.01 (monthly interest rate), and n = 240 months. Inserting these values results in a monthly instalment of approximately R5,500.91.
The rate of depreciation is calculated by determining the proportional decrease in asset value per annum as a percentage of its value at the beginning of that period. In the reducing balance method, for example, a car's book value decline from R145,000 to R72,500 in 5 years implies a consistent rate, derived by solving n for the equation 72,500 = 145,000*(1-r)^5, resulting in approximately 13% annually.
In a fixed annual rate depreciation (reducing balance method), the car's value diminishes at a consistent percentage of the remaining value each year. This method implies that the asset loses less value in monetary terms each successive year since it is calculated from a progressively smaller base value. For a car depreciating to R72,500 from R145,000 in five years, the depreciation rate is approximately 13% per annum.
Gavin's financial implication is primarily dictated by interest. With a 10% deposit on R1,200,000, the loan amount is R1,080,000. After 20 years, compounded monthly at 8.4%, the total repayment massively exceeds the initial house value due to interest, approaching R2,320,000. This highlights the significant cost beyond the nominal loan amount primarily attributed to the interest accrual over time.
Compounding frequency impacts how often interest is calculated and added to the principal. The more frequent the compounding (e.g., monthly vs. annually), the more interest is accrued, resulting in a higher total repayment cost over the loan's life. For instance, R10,000 at 7.5% p.a., compounded semi-annually over 3 years, results in more interest paid compared to simple annual compounding.
Shortening the amortization period increases the monthly repayment amounts, as the principal must be repaid more quickly, plus interest calculated over fewer periods. For example, converting a 20-year loan repayment schedule to 10 years substantially increases the monthly amount but reduces total interest paid given less time for interest to accrue.