€8 000 is invested at a rate of 4% per annum. At the beginning of the second year, an additional €800 is added to this amount. The interest rate for the second year increases to 5·3%. (i) How much is this investment worth after 1 year? (ii) What is the fi nal amount in the account after 2 years? (iii) How much interest was earned on the investment over a period of 2 years?
Solution
’Per annum’ is a Latin term that means annually or each year.
(iii)
Discuss and discover
You wish to take out a loan for €1 000 for a holiday and pay it back in full at the end of two years. Using appropriate research methods, compare rate and overall cost in a: ●
bank ● ● credit union short-term money lender
Which organisation will offer the best value for the loan? Explain your reasoning.
Practice questions 13.5 1. (i)
For the formula below, identify the terms as being either a variable or a constant.
(ii) Explain what each variable represents. Variable or constant?
F = P(1 + i)t Variable or constant? Variable or constant? Variable or constant? 206 Linking Thinking 1 Variable or constant?
2. €10 000 is invested for two years at a rate of 3%. Calculate the value of the investment at the end of two years using: