MATH MEME OF THE WEEK

“To show
you how well
I understand
fractions, I
only did half
of my
homework.”

1
 FINANCIAL
MATHEMATICS
 1.
Simple Interest
Simple Interest
 Interest calculated as a percentage of the principal (the
amount of money invested / borrowed)
FORMULA :
I = PrT
I = interest
P= principal or initial quantity
r = rate of interest per period (per year),
expressed as decimal
T = number of periods (usually in years)
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Example 1
Julia invested her inheritance of $12 520 at 6.35% p.a. for 20 months. Calculate the
simple interest Julia earned.
Solution
0.0635
P = $12 520 r= per month T = 20 months
12

I = PrT

0.0635
= $12 520 x 12
x 20

= $1325.0333…
≈ $1325.03
5
Example 2
Carmel invested $3500 in a savings account. After 4 ½ years, her investment grew to
$4185.12. What simple interest rate, as a percentage to two decimal places, did Carmel
receive on her investment?
Solution
Interest, I = $4185.12 - $3500
= $685.12
P = $3500 T = 4.5 years
I = PrT
$685.12 = $3500 x r x 4.5
$685.12 = $15 750r
$685.12
r =
$15 750
= 0.043 49 …
r ≈ 4.35% (simple interest rate is 4.35%)
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Amount Owed or Future Value (FV)
 To determine the amount owed on a loan or the future
value of an investment, the INTEREST IS ADDED TO
THE PRINCIPAL

A=P+I
A = amount or final balance
I = Interest (simple or flat) earned
P= principal or initial quantity

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Example 1
Find the amount owed on a loan of $75 000 at 6% per annum simple
interest at the end of 3 years and 9 months.
I = PrT
= 75 000 x .06 x 3.75
= $16 875

A=P+I
= 75 000 + 16 875
= $91 875

Therefore, the total amount

8 owed is $91 875
 1
Independent Practice
Pearson Mathematics 9 pages 46 - 49
Fluency
Numbers 4, 6, 7, 9, 10, 11, 12

Understanding
Numbers 13, 14, 15, 18, 19, 20
Reasoning
Numbers 21, 22
Open – ended
Numbers 23, 24 10
 2.
Compound Interest
Compound Interest
 Is interest that is added to the principal and reinvested. The principal plus
interest becomes the new principal on which interest is calculated.

FORMULA :
A=P 𝟏+𝒓 𝒕
A = amount or final balance
P = principal or initial quantity
t = number of compounding periods
r = interest rate per compounding period, expressed as decimal
I = the compound interest (I) can be solved using I = A – P
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Example 1
A principal of $3000 is invested at 6% p.a., compounded yearly.

a. Find the amount of the investment at the end of 3 years.

b. Calculate the compound interest earned after 3 years.

c. Find the amount of the investment after 5 years.

d. Find a formula for the amount of the investment after t years.

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A principal of $3000 is invested at 6% p.a., compounded yearly.
a. Find the amount of the investment at the end of 3 years.
Solution
a. At the end of the 1st year:
Amount = $3000 + 6% x $3000
= $3000 x 1.06
At the end of the 2nd year:
Amount = ($3000 x 1.06) x 106%
= ($3000 x 1.06) x 1.06
= $3000 x 1.062
At the end of the 3rd year:
Amount = ($3000 x 1.062) x 106%
= $3000 x 1.063
= $3573.048
≈ $3573.05 14
A principal of $3000 is invested at 6% p.a., compounded yearly.
b. Calculate the compound interest earned after 3 years.

Solution

b. Compound interest earned = final amount – initial principal

= $3573.05 - $3000
= $573.05

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A principal of $3000 is invested at 6% p.a., compounded yearly.
c. Find the amount of the investment after 5 years.

Solution

c. Increasing $3000 by 6% five times:

Amount =P 𝟏+𝒓 𝒕
= $3000 x 1.065
= $4014.676 733
≈ $4014.68
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A principal of $3000 is invested at 6% p.a., compounded yearly.
d. Find a formula for the amount of the investment after t years.

Solution

d. Increasing $3000 by 6% n times:

Amount = P 𝟏 + 𝒓 𝒕
= 3000(1.06)t

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Example 2
If $12 500 is invested at 4.8% p.a. with the interest compounded
monthly, calculate the final balance and total interest earned over 2
years.

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Example 3
What principal must be invested at 4.5% p.a. compounded
yearly for 8 years so that it grows to $10 000?

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Example 2
Solution
Because interest is compounded monthly, r and n must be expressed in
months.
0.048
P = $12 500 r= = 0.004 per month t = 2 x 12 = 24 months
12

Final balance = $12 500(1 + 0.004)24

= $12 500(1.004)24
= $13 756.8537 …
≈ $13 756.85
Compound interest = $13 756.85 - $12 500
= $1 256.85
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Example 3 Solution
Solution
A = $10 000 r = 0.045 t=8

A = P(1 + r)t
$10 000 = P(1 + 0.045)8
= P(1.045)8
$10 000
P=
1.045 8

= $7031.8512 … (round the principal up to give the

required final amount)
≈ $7031.86 21
 2
Independent Practice
Question 1

23
Question 2

24
Question 3

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