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QSC Math Course Reader First Year

The document is a course reader for Quantitative Skills for Commerce at the University of the Western Cape, covering topics such as ratio, proportion, approximation, scientific notation, and solving simple linear equations. It provides definitions, examples, and exercises related to these concepts, emphasizing their practical applications in various fields like business and daily life. The document also includes methodologies for solving proportion problems and rounding off numbers to minimize errors in calculations.

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31 views152 pages

QSC Math Course Reader First Year

The document is a course reader for Quantitative Skills for Commerce at the University of the Western Cape, covering topics such as ratio, proportion, approximation, scientific notation, and solving simple linear equations. It provides definitions, examples, and exercises related to these concepts, emphasizing their practical applications in various fields like business and daily life. The document also includes methodologies for solving proportion problems and rounding off numbers to minimize errors in calculations.

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cj11vermeulen
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Sasveen care, University of the Western Cape Department of Mathematics & Applied Mathematics QUANTITATIVE SKILLS FOR COMMERCE (QSC 131/132) a COURSE READER UNIT1 RATIO, PROPORTION APPROXIMATION SCIENTIFIC NOTATION SOLVE SIMPLE LINEAR EQUATIONS At the end of this section you should * * * es understand the concept of a ratio, a rate and proportion be able to simplify a ratio be able to approximate/ round off a number to a certain degree of accuracy be able to write a number in scientific notation be able to interpret scientific notation be able to solve simple linear equations be able to test your answer to the solution of equations Ratio and proportion Ratio ‘A ratio is a comparison between two or more like quantities in the same units. A ratio is a way of comparing quantities; e.g @ and b that are in the same units. Ratios can be expressed in the following and b are always whole numbers (not fractions or decimals). In English a proportion represents the relative contribution of a quantity to the whole. In mathematics when we set two ratios equal to each other we have a proportion. E.g. 3:5=12:20or ; = Z isa proportion, The proportion 3 : 5 = 12 : 20 is read as “3 is to 5'as'I2 is 020”. A proportion can be used 2 fo God etn tne quaniity ter 2 jag: The English use ofthe term is often used to express what portion a partis of the whole. For example if two quantities X and Y occur in the ratio a b then X ‘occurs in proportion a+b Rate A rate is a comparison between quantities of different kinds, e.g. Average speed (rate of travel) = Distance travelled ~ Time taken, and will be expressed in kmV/h. A rate is expressed as .... per .... OF (oon, as in RS perkg, 60knv/hr or 12knlitre, Example. At the Happy Home for Disabled Persons every resident's allowance is divided in the ratio of 5: 3 in respect of lodging fees and pocket money. This means that: Lodging fees + Pocket money = 8 parts and then: © RS out of every R8 will be paid for lodging and R3 out of every R8 is pocket money © > ofthe total income will be paid for lodging and 2 eral betparletteey Ifa person’s income is R800, then ; of R800 = R500 goes towards lodging and ; of R800 =R300 is pocket money. ‘The total is 8 parts and is divided in the ratio of 5 parts to 3 parts, 2 Example 2: Change these sentences to ratios in their simplest form: ‘a. Nomso has R150 and Phiwe has R200. b. Allen has 24 marks and Jock has 36. Solution a. Nomso : Phiwe= 150 : 200. Divide each number by 50 which gives 3: 4 ‘Their money is in the ratio 3 : 4 or Nomso has 3 of Phiwe’s amount and Phiwe has + or u of Nomso’s amount, Nomso has 2 of the total amount and Phiwe : : b, Allen : Jock = 24:36, Divide each number by 12 which gives 2 : 3 Allen has, 2 of Jock’s marks or their marks ar in the ratio 2:3 Example 3 (Rates) During a sale of men’s shorts, a store sold 568 pairs in 22 minutes. Express the sales as: a) number of pairs sold per minute b) number of pairs sold per hour. Solution 4) 568 pairs in 22 minutes therefore in one minute = = 26 pairs are sold (means “approximately ‘equal”, One cannot sell 25.8 pairs in one minute so one rounds up) b) 568 pairs in 22 minutes therefore in 60 minutes = x60 = 1549 pairs are sold. Ratios are used in industry, business and daily life for example: * Metals are mixed in certain ratios for particular properties; paint colours are mixed in certain ratios, etc. Fruit juice usually has an apple juice base mixed with other juices in a certain ratio to name but a few instances. When you apply for a mortgage the bank applies a ratio to determine whether you qualify for a Joan. If the ratio of fixed payments to monthly income is more than (e.g.) 25:100, the bank is unlikely to grant the loan. * Many companies use a ratio to determine the charge for their goods or services, for Example, a storage company charges a fixed amount for every square metre occupied; rent for shop space in ‘a mall is also charged per square metre, etc. * Recipes are adapted for larger or smaller groups by changing all the ingredients in the correct proportion. * Often the quality of education has been determined by the ‘student : teacher’ ratio. * Which product is the cheaper one is determined by the price per quantity (e.g. R’ke). To simplify a ratio vou multiply or divide each number in the ratio by the same number. Exam 4.1 Jolene pours 1 carton of apple juice and 3 cartons of peach juice into a large jug ‘What is the ratio of apple juice to peach juice in the jug? 4.2. Mrs. Grey uses 900 ml of apple juice and 1 500 ml of peach juice. Find the ratio in the simplest form (lowest terms). BAN rae litres of apple juice and 2 litres of pine juice. Find the ratio in the simplest form. 4.4 Sophia makes 750 ml of detergent from a detergent concentrate. Water is added to the concentrate in the ratio of 5:1. How much concentrate is needed? ms: 4.1 Apple juice : peach juice= 1:3 AI OOD se SOg me Pe OUP is a aevace Wott andere BY 400) 300 * 300 1 4 4 . 43 1:2 = 5:2 = J x3: 2x3 change to improper fractions; then to whole numbers = 4: 6 (now divide each number by 2) = 2:3 44° Aratio of 5:1 means there are 6 parts altogether; 5 of water and 1 part concentrate. The ratio of the concentrate to the mixture is 1 : 6. (multiply both sides by 750.) 6 750 x 722 125 ml which means that 125 ml represents one part, so the amount of water will be 5 parts of 125ml each = 5x 125 = 625 ml. 4 Methodology in solving problems relating to PROPORTION The method illustrated below is useful but pretty mechanical. It allows people to solve fairly complicated proportion problems, both direct and inverse proportion, quite easily without necessarily understanding the mathematics. I feel that it is nevertheless appropriate because proportion problems will appear frequently as the course proceeds. Example $ If a cyclist travels 20km in 40 minutes how far would he eycle in an hour (60 minutes) if his speed remains the same? Solution: Set out the problem like this; Minutes 40 60. Proceed as follows: Write down 2 x... and then ask the question “If 20 km take 40 minutes, will 1 go further or shorter in 60 minutes?” If your answer is “further, more, greater, bigger, ete.” then replace the ... with the fraction with the larger number as numerator. If your answer is “shorter, less, fewer, smaller ete” then replace the .... with the fraction with the smaller number as the numerator. In our case the answer is “further” thus the ... gets replaced with 2. So x 2.8 30km Example 6 _A bricklayer takes 6 days to build a wall of 84 m?. How long would it take 3 bricklayers to build the same wall working at the same rate? Solution [Bricklayers | Days . We now ask ourselves the question? “If one bricklayer does the job in 6 days will it take more days or fewer days to do the job if3 bricklayers worked on the job?”. Our answer here is fewer 61 days days. This is an example of Inverse proportionality. ‘Now for a really hard one: If5 cats catch 5 mice in 5 days, how long would it take 3 cats to catch 3 mice? Cats z z x We divide this into 2 sums each with 2 columns and proceed like we did before. First we use Cats and Days, then we use Mice and Days. We always need to use the column with the x. 3... and ask ourselves “If 5 eats do the job in 5 Using columns Cats/Days, we write down x 1 of the interest rate is compounded. quarterly = four times a year. This means that 1 year will be taken as 4 periods and at each compounding only + of the interest rate is compounded. monthly = 12 times a year. This means that 1 year will be taken as 12 periods and at each compounding only For the interest rate is compounded. week only = of the interest rate is compounded. daily = 365 times a year. ‘This means that 1 year will be taken as 365 periods and at each compounding only == of the interest rate is compounded. continuously. (This will be discussed in Unit 6) =52 times a year. This means that 1 year will be taken as 52 periods and at each compounding A General Equation for Compounding more frequently than Yearly FV_ = PV x(1+4)”", where m is the number of compounding per year. we Therefore, for semi-annual compounding, we have: FV, = PV x (1+ 4) and, for quarterly compounding, we have: FV, = PV x and, for monthly compounding, we have: Fi, = PV x and, for daily compounding, we have: Fy = PV x(1 19 Example 3 Thabo invests R5000 on fixed deposit. The investment ears 103% p.a. interest compounded quarterly. Calculate the amount in the account after 6 years. Solution: Given PY = R5S000 i = 103% = 0.105 n=6 Fy, = Pv x(1+=) 0,105)°** 5 PY, = R5000 x (1+ = R5000 x (1.02625)** = R9312.07 Xercise 1. Determine the future value of an investment of R25 000 if it is invested at an interest rate of 12% pa. for 6 years and the interest is compounded: a) semi-annually b) quarterly © c)-— monthly 2. A bank customer wishes to have an amount of R300 000 at the end of 10 years. The bank Pays an interest rate of 8% per annum, compounded semi-annually. How much money will the customer have to invest with the bank now? 3. The same customer is offered by a different bank an interest rate of 6.5% per annum, compounded monthly. How much money will the customer have to invest with this bank now to achieve his goal of R300 000 in 10 years” time? 4, How much should be invested now into an 8% per annum interest-bearing account, compounded quarterly, so that an amount of R250 000 will be accumulated in 6 years? 5, ‘The postmaster wants to retire on his 65" birthday with R1 000 000 from an investment he is about to make in his bank on his 45" birthday. If the bank pays an interest rate of 6% per annum, compounded daily, how much must the postmaster invest now? 21.24 Finding n andi Very ofien one needs to determine the time, 1, that a deposit deeds to be held in order for it to grow to a predetermined figure. Similarly, we sometimes need to determine the interest rate, i, which applies to a given situation, To solve such problems, we need to “change the subject of the formula given in 2.1.21 and [Link]. 1) To get é: Given Fy =PVX(1+)" 2 (1+ 0"= i oy re "Pa a FYE Gry -3 20 ‘more than once per year, i.c., we have an m term the above equation becomes: £1 2) To get n, we will discuss this section in unit 6 Examples 4 Suppose that R2500 amounts to R6750 in 6 years with interest compounded monthly. ‘What annual rate of compound interest has been used? Solution: Given: PV =R2500, FV = 6750, i n=6 1 2 i _ (EV (6750\6x12 a py) it ag aa) —1= (2.7)72 —1 = 0.013890... #1 = 12 x 0.013890 ... = 0,166689...x 100 ~ 16.67 Exercise 2.5 1. Suppose that R5000 amounts to R6352 in 12 years with interest compounded quarterly. What annual rate of interest was used? 2, Mike invests R3000 in a savings account. He leaves it there for 5 years and finds that the balance is now 3900. What interest rate has he been paid if the interest is compounded semi-annually. inal and Effective Rate of Compound Interest The nominal rate (or stated annual rate) of compound interest is the contractual annual rate of interest charged by a lender or promised by a borrower. The effective (or true annual rate) (EAR) is the annual rate of interest actually paid or camed. The formula for EAR = ieyy = (1+4)"" 1, where m is the number of compounding per year and / is the nominal annual rate. Effective rate of interest can also be thought of as Average Annual Rate of interest that is paid or received. It is important to realise that one can only use this formula for EAR when there is only one / and one m. If a situation occurs where there are more than one values of / or m or if you are dealing with continuous compounding then altemative methods have to be used to get the Effective or Average annual rate of interest (we will discuss this later in UNIT 6). 21 Example $ Find the effective annual rate with an 8% nominal annual rate when interest is compounded: a) annually (this means m= 1): Given: 1=8% =0.08 m 1 gaR =(1+4)"-1=(1+%) -1=108-1= 0.08% 100 = 8% b) semi-annually (m=2): Given: (=8%=0.08 = m=2 ar=(144)"-1=(1 +208)" — 1 = (4.04)? ~1 = 0.0816 x 10 8.16% ) quarterly (m= 4): Given: #=8%=0.08 = m=4 gar =(1+4)"-1=(1+ .0824 x 100 = 8.24% Exercise Determine the effective annual rate of interest camed on an investment of R25 000 if it is invested at a nominal interest rate of 12% for 6 years and the interest is compounded: a) semi-annually b) quarterly c) monthly 21.2.7 Depreciation So far, we have been dealing with compound interest which is an example of compound growth. The growth factor was (I+1) where i is the annual interest rate. In the same way that there is compound growth there is also compound shrinkage. In such cases the value gets smaller rather than bigger after each compounding process. One form or method of depreciation is an example of compound shrinkage Depreciation refers to the process of finding the reducing value of an asset over time. If one buys a new car for R100 000 its value will decrease the older it gets. The depreciated value of that car after 3 years might be only R60 000. There are two kinds of depreciation, straight-line and reducing balance. In straight-line depreciation the depreciation amount is calculated using the original value of the asset. In other words, if an asset cost R60 000 and it depreciates by 20% per year on a straight-line basis then the depreciation amount per year is always the same, namely 20% of R60 000 or R12.000 per year. Thus after one year the value of the asset is R48 000 and after two years its value is R36000. Afier five years its value is zero (from an accounting perspective). This form of depreciation is similar to simple interest where the interest amount remains constant from period to period. In reducing balance depreciation, the depreciation amount is dependent upon the previously depreciated value of the asset. In other words, ifan asset cost R60 000 and it depreciates by 20% per year ona reducing balance basis then the depreciation amount per year will be different each year. For example, in the first year the above asset will depreciate 20% of R60 000 which is R12 000. Thus, after one year the value of the asset is R48 000 (R60 000 ~ R12 000). In the second year the depreciation amount is 20% of R48 000 which is only R9 600, Thus, after two years the value of the asset is R38 400 (R48000 — R9 600). In the third year the depreciation amount is now based on the current value which is R38 400. This continues year afier year, This is an example of compound shrinkage, 22 ‘The calculation of reducing balance depreciation is exactly the same as calculating compound interest except that the value of /is negative. If the depreciation rate is 15% then the i is -0.15. Example 6 ‘A sewing machine costing R30 000 depreciates by 15% per year using a). Straight-line method, and hb) Reducing balance method. Calculate the value ofthe machine afer 4 yeas using both methods Solution ‘a) Depreciation amount is P x i X n (same as simple interest formula on page 34). ‘Thus P x i x n = 30000 x (-0.15) x 4 = —R18000. The depreciated value after 4 years is thus: R30000 + (—R18000) = R12000 b) PV = R3000, FV, n=4,m=1, 15% = —0.15 FY, = PV x (1 +)" = 30000 x (1+ (—0.15))* = 30000(0.85)* = R15660.19 Exercise 2.7 1. A company buys a laser printer for R45000. It will depreciate the printer at a rate of 12’2% per annum. ona straight line basis. What would be the value of the printer after 3 years? {_ } ay 0) 2. A shop owner installs an air-conditioner for his shop. At the end of the fourth year the air-conditioner had a book value of R35000. Assuming that the depreciation rate was 30% per year using the reducing balance method: i) ‘What was the original price of the air-conditioner? ii) Find the book value at the end of the 7® year. 23 3. A construction company purchased a truck for R940 000. After 4 years, using the reducing balance method, it had a book value of R511 180. Find: i) The annual rate of depreciation (give answer as percentage correct to 2 decimal places) ii) The book value at the end of 3 years. 2.2 Annuities It is not always the case that one makes a single deposit into a savings account and allows it to grow while caming compound interest, Very often one wishes to make regular monthly or yearly deposits into a savings account. After some years of so doing a balance exists in the account which is made up of all one’s deposits plus interest. Similarly, when we borrow money from a bank in order to buy a motor ear or a house we pay it back in regular instalments. Each instalment contains an interest component and a payback” or capital component. A regular series of equal payments or receipts is termed an annuity. Examples of annuities are salaries, pension receipts, rent payments, regular bank deposits, mortgage bond repayments etc. ‘We will look at a situation graphically. Suppose Miss Thulani wanted to know how much money she would have at the end of 5 years if she deposits R1000 annually at the end of each of the next 5 years into a savings account paying 7% annual interest. If we were to solve this problem using principles which we have leamed so far, we would do the following, The first R1000 which was deposited at the end of year-1 earned interest for 4 years. Using the compound interest formula, we find that this R1000 would become R1311 after 4 years, The second R1000 only carned interest for 3 years. The third earned interest for 2 years and so on until the last R1000 eared no interest at all. Figure 2.1 below illustrates this quite clearly. We see from the figure that at the end of 5 years Miss Thulani would have R5751 sitting in the account, rast ins Deposits 10001000 RIO RI _—_RIB00 t 7 + End of Year Figure 2.1 24 If she were depositing the R1000 at the beginning of each year, then the sum would be different because the first deposit would eam 5 year’s worth of interest instead of 4 and so on. The final amount at the end of S years would be R6154 which is more than before. This is illustrated in Figure 2.2 below. It is thus very important to watch the timing of the annuity payments and the timing of the final amount. A similar situation arises when we are paying offa loan. If we pay at the beginning of each month we would end up having paid less interest in total on the loan than if we were paying our instalment at the end of each month, An annuity where the payment is at the end of each period is known as an Ordinary Annuity. An annuity where the payment is at the beginning of each period is known as an Annuity Due. Rios Ri. Rins 0001000 R000 z 3 7 Beginning of Year Figure 2.2 So far we have been looking at future values of an annuity. Suppose that you have won a prize which promises to pay you R1000 at the end of each year for the next 5 years. You know that current interest rates are 7%, What you want to know is how much is the prize really worth at today’s money. In other words what is the present value of the prize? We see from figure 2.3 that the prize is really only worth R4100 of today’s money and not R5000. If someone were to offer you R4400 now for the prize you should take it. 25 Figure 2.3, End of Year é 1 2 3 4 Receipts R100 R100 R1000——-R1000-—-R1000 R935 R873 R816 Raioo Present Value We will now see how to calculate Future and Present values using formulae. Some extra work: Use the Future and Present values using formulae for annuities to confirm the answers in figure 2.1, 2.2 and 2.3. Deposits needed to Accumulate a Future Sum Suppose you want to buy a house 5 years from now, and you estimate that an initial down payment of R250 000 will be required at that time. To accumulate the R250 000, you will wish to make equal annual end-of-year deposits into an account paying annual interest of 6% per annum compounded annually. We use a multiplier known as the future value interest factor for an ordinary annui PviFAg="x|(1+ 4) -3] and calculate the payment with the formula: FVA, PMT * FVIFAyy 26 where PMT is the regular payment or savings (annuity) and FV.4» is the future value of an n-year ordinary annuity and mis the frequency of deposit In our example: Given FVAs = R250 000, PMT n and our payment becomes par = evan _ 250000 _ 44 349.10 FVIFA;, 5.637. 4 ‘This means that if we deposit R44 349.10 each year for 5 years into an account that pays 6% compound interest we would have R250 000 at the end of the 5 years, Example7 ‘Tandeka deposits R250 every 3 months into a savings account that pays interest at a rate of 8% per annum compounded annually. How much money will be in the account at the end of 10 years? ‘Solution: Given: FVAyo =?, PMT = 250, n= 10, m=4, (= 8% = 0.08 pr = Yn. eva, = PMT x FVIFA FVIFA,, eee ie 5 100.50 Exercise 2.8 1. For each of the cases shown in the following table, calculate the missing figure at the end of the specified period, assuming the stated interest rate. Case [Sum to be] Regular | Accumulation period | Interestrate | Deposit accumulated _ | Deposit (years) Frequene} A R 5.000 2 3 12% Annual B 2 1000 20 TM Quarter! G R 30.000 2 8 10% Month D 2 2500 12 3% Six-month More problems can be found at the end of section 2.2.2. ie term loan amortization refers to the computation of equal periodic loan payments. These payments provide a lender with a specified interest retum and repay the loan principal over a specified period. Amortizing a loan actually involves creating an annuity out of a present amount. For example, say you borrowed R6 000 at 10% and agree to make equal annual end-of-year payments over 4 years. To find the size of the payments, the lender determines the amount of a 4-year annuity discounted at 10% that has a present value of R6 000, The formula for calculating this payment is: where 1 PVIFAt0%, 4 years 1-——_ | = 3.169 (+5) ‘Therefore, 6000 aes = R1892.82 (note that although we round off the answer to the first calculation, we do not remove it from the calc tor, but instead use the full number i the second calculation to get the most accurate answer.) Example8 _ A family takes out a mortgage bond to purchases a home. They agree to make monthly repayments of R750 over the next 20 years. If the interest rate is 11.5% compounded monthly, what was the amount of the bond? pur = Yas. pya, = PMT x PVIFA, ene = PMT x PVIFAiy, 7 she PMT = R7500, n= 20, m= 12, i = 11.5% = 0.115 m dt [arid Zine gf 1 reine acs (a 44 0s | co + PVAgg = 7500 x 93.7708 ... = R703 281,28 Given PVAgg =! = 93.7708... PVIFAt1 5%, 20 years Here are a few important notes on solving problems in this section: 1) Always write down what you are given, There should always be one of the variables which is missing and that is the one you will need to calculate. 2) In annuity problems you will be asked to calculate either the PY, FV or PMT. If you are requiring the FY then the PY =0. Similarly, if you are requiring PV then FV=0. 3) Ifyou need to calculate FV then you use the FVIFA formula. Similarly, if you need to calculate PY then you use the PVIFA formula. Exercise 2.9 1. For each of the cases shown in the following table, calculate the missing figure at the end of the specified period, assuming the stated interest rate. Case Sum Regular | Period (years) | Interestraie Payment Borrowed _| Payment | Frequency A R 100 000, 2 10 12% Annual B 2 1000 20 [7% Quarter c R75 000 2 8 [10% Month D 2 4000 12, 8% Six-month 2. A father decides to deposit a yearly amount in a savings account for his newbom child with a view to using the money for university studies for his child when the child is 18 years old. He estimates that he will need R136 000. The interest rate is estimated to be 8% p.a. compounded annually. If the first deposit is made on the child’ first birthday, what is the size of each of the 18 deposit. 3. In the above problem what would be the size of each deposit if the father decides to make a quarterly deposit instead of an annual one? (assume quarterly compounding) 4, eff Jones would like to receive payments of R4 000 each quarter for 10 years after he retires. Money is worth 8% p.a. compounded quarterly (interest @ 8% p.a.). a) How much money must he have on deposit at retirement in order to receive these payments? b) If Jeff will retire in 15 years, what single deposit should he make now so that he will have the necessary funds at retirement (assume quarterly compounding)? ¢) How much will he receive in total payments? 29 5. Ben wins the “Million Rand” lottery prize. He is informed that he can either receive R50 000 per year for 20 years (which equals one million rand) or take R500 000 now and receive no more in future. a) If interest rates are expected to be no less than 8% p.a. compounded annually, then from a purely financial point of view, which is the better deal? 'b) Would the size of the interest rate have any effect on this result? Please explain. 6 A delivery truck cost R300 000. After a down payment of R80 000 the balance is financed with monthly payments at 9% (p.a.) compounded monthly for 4 years. How large is each monthly payment? 6. Samuel wishes to buy his dream car when he retires in 6 years time. The car now costs R350000. Car prices have been rising in price by an average of 5% per year and this trend is expected to continue, If Samuel can eam 9% p.a. interest how much must he deposit at the end of each month to be able to buy his dream car when he retires? It is often necessary or of interest to know how much is still owed after a period of paying off a loan such as a mortgage bond or a car loan Example 9 Suppose you take out a mortgage bond of R950000 on the purchase of a house. The mortgage is repayable monthly over 20 years at an annual interest rate of 8%. a) Calculate the monthly repayment amount. b) How much will still be owing after 5 years worth of repaying? c) How much interest has been paid in the 5 year period? Solution a) Given PVAz = R950 000, FVA =0, PMT =?, n= 20, m= 12, i= 8% = 0.08 =< x |1 -——___pp5 | = 119.5542... m PVIFAgy, 20 years ==> 107 30 R950 000 119.5542 1b) We will use two methods as follow: ‘Method 1 Given PVA = R950 000, FVA =0, PMT = R7946.18, m= 12, i= 8% = 0.08, 0 ~ 5 = 15 (Remaining years after 5 years) 40 — 60 = 180 (number of outstanding payments) PVA, = PMT x PVIFA, put x= x Fa PVA, = 7946.18 x “= x1 2 R831 492,98 4: PV Ay = 7946.18 x = x|1 -——> | = ; me L(+) Method 2 Balance, = Fyjom" — Fypoments We need to find the balance after 5 years which means after 60 payments (5 years times 12 payments per year). Thus p = 60 PVAz =R950000, FVA=0, PMT =R7946.18, n=S, m= 12,p = (nx m) = 60, 8% = 0.08 xm saz Fv jee = py x (: +5) = 950 000 x (1 +) = R1414343.42 im 12 PMT = R7946.18?, in x m) = 60, mm a 0.0822 = | a IG ) - | 73.4768 FVALO™"S = 7946.18 x 73.4768 ... = R583 860.33 Balance, = Fv,ea" — FyP@m™s — R1414343,42 — R5B3 860.3: = R831493.09 a) Total instalments over the 5 years = 5 x 12 x R7946.18 = R476770.80 Total Capital repayment over 5 years = Loan amount ~ Balance after 5 years = R950000 ~ R831493.09 = R 118506.91 Total Interest paid over 5 years = Total payments ~ Capital repayment = R476770.80~ R118506.91 = R 358263.89 31 Example 10 Yusuf buys a new car for R230000. He puts down a 10% deposit and takes a loan for the balance over 4% years at 11% p.a, repayable monthly. a) Calculate the monthly repayment. b) After paying his instalments for 3%4 years he decides to simply pay off the outstanding balance. Calculate what this outstanding balance would be. ©) Calculate the total amount of interest which Yusuf would have paid in this deal. Solution a) The value of the loan taken out = 90% of 230000 = R207000 Given PVAzg = R207 000, FVA =0, PMT =2, n= 4.5, m=12, i= 11% = 0.10 PVIFAx0%, 45 years = 42.4421... partie Azer eR BAT OOD sg PVIFA, — 424421... i b) Method 1 Given PVA,s R207 000, FVA = 0, PMT = 4877.23, m = 12, i= 10% = 0.10 1 (Remaining years after 4.5 years) 12 (number of outstanding payments) 1 PVA, = PMT X PVIFA;» = PMT X = x |1-——>an (+5) 2 1 2 PVAy = 4877.23 x x [1 — TAR = P55 183.71 out (1+ 32.

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