8.4

TLW apply loan and investment tablesBanks provide tables to help people calculate their repayments .

Example using table on page 396 The table shows the repayments for a home loan.

The interest rates given are nominal per annum rates but are to compound monthly. The repayment is calculated on a loan of $10 000.

How does this table work for a loan of $100 000 lasting 20 years, at an interest rate of 7.5%.

How much money do you pay for this loan in total?

Example Using the table on page 396, compare the total

repayments for a loan of 50 000 GBP at 8.0% nominal rate, compounding monthly, with time periods of

10 years 25 years

Using Your GDC Use your GDC

to fill in the missing values x, y, z, w and v in this loan table.

The repayment is calculated on a loan of $1000 and made on a weekly basis.

Time in years

4% 6% y%

1 19.6253

z 20.2269

2 10.0088

10.2094 v

x 4.2451 w 4.8911

Construct and Use Tables: investment and saving schemes

Use to display different types of financial information

Look at the table on page 400. This table shows future values for £1000 fixed

investment using various compound interest rates and time periods. All calculations involved are from 8.3.

Write down the value of the investment after◦ 2 years◦ 20 years

If an amount of £2000 is invested at interest rates of 5% compounding yearly 7% compounding monthly

InflationChanges in price of goods, usually

upwardsMoney has less buying effect.CPI: consumer price index

◦ Measurement of % increase for prices over a given time period

◦ Compound interest formula:

From June 2005 to June 2006 the Australian Bureau of Statistics recorded to CPI of 4.4%◦ If a half-litre of milk cost 2.05 AUD in June 2005,

how much did it cost in June 2006?

◦ Based on the same CPI, how much will the milk cost in June 2007?

◦ How much will it cost in June 2010?

Based on the same 4.4% annual inflation rate, calculate what the cost (to the nearest dollar) of a new car would have been in June 2005, if the price in June 2007 is 22 000 AUD.

VocabularyReal Return: subtracting the inflated value of

and investment from the total after applying interest earned.

Real Average Rate of Return: the real return expressed as a percentage of the original investment amount and averaged over the time of the investment

Remember that when you invest money and calculate the future value after earning interest you need to take into account the effect of inflation. Inflation reduces the increase.

Prasad saves €2000 in an account offering 5.2% annual interest. Inflation is running at 3.6% p.a. Find the real return and the real rate of return after two years.