MAE203P TUTORIAL LETTER 201 Semester 1 2017

QUESTION 1 (25 marks)

1.1 Straight line method refers to simple interest whereas reducing balance method refers to
compound interest. Hence straight line represent investment method where interest is accrued
over a given period of time while the reducing balance method, interest is earned all the time
from the day the investment id made.

ANY EXAMPLE WILL DO:

Example: Janet invest R40 500 with STANLIB for 5 years. Determine her amount at the end of 5
year period if the bank decided to offer:
a) 12.5 % p.a. on simple interest.
b) 12.5 % p.a. on compound interest.

SOLUTIONS: Given; P = R40 500.00, n = 5 years, i = 12.5% p.a.

Straight line method: Reducing balance method

A = P(1 + i x n) A = P(1 + i)n

= 40500(1+0.125 x 5) =40500(1 + 0.125)5
= R65812.50 = R72982.32

Concluding remarks: Reducing balance method offers best reward than a straight line method
on an investment as can be seen from the above example.
One may also choose to explain these terms in terms of depreciation as long as the correct
formulae are used in one specific example to outline the distinction. (10)

1.2 Clearly defining the differences between the given concepts:

1.2.1 Nominal rates refers to the stated interest rate a lender advertises whereas Effective rate
refers to actual interest rate a borrower is charged by the lender. (4)
1.2.2 Hire purchase is a short term loan agreement in which interest is calculated as simple
interest on the full amount of the loan over the entire repayment period. while Inflation
refers to the average increase in the cost of goods and services over a period of time. (4)

1.3 Three disadvantages of using internet banking include:

the cost implications as one needs to have a computer or cellphone to use.
hence the access issues become a reality as majority lives in rural with poor internet signal
the security concerns as criminals advance as technology advances
banks shut down their websites for routine maintenance from time to time as such clients
cannot access their accounts even on emergency. (3)

1.4 The fixed costs in a budget are costs that remain the same (constant) and are presumed not to
change anytime soon whereas variable costs refers to those that actually change all the time
once the budget gets implemented. (4)

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Open Rubric
QUESTION 2 (25 marks)

2.1 The statement of financial position tells the owner of the business how much money the
business and how well his or her business is using and managing that money. Such statement
does list the assets, liabilities, and equity of an organization as of the report date. The
information on the statement of financial position can be used for a number of financial
analyses, such as comparing debt to equity or comparing current assets to current liabilities.
(5)

2.2 Differences between a current asset and a current liability: (10)

Current assets Current liabilities

A current asset is cash or any asset that can
be reasonably converted to cash within a
period of one year. Such asset include
-Short-term investments classified as cash
equivalents except non-current assets.
-Receivables refer to what the business is
owed by customers and has not been paid.
-Cash and cash equivalents thus the actual
currency that is available for use.
-Inventories refer any raw materials, or
completed products and those that are still
in production process.
Current liabilities are debts that are due
within 12 months. These includes among
others:
-Short-term notes payable refers to loans
that are due upon demand.
-Accounts payable which refers to money
owed to suppliers
- Overdrafts refer to short term advances
made by the bank
-Rental payments the business make for
renting buildings, land and other
equipment.
Wages which are often owed to the
employees of the business.

2.3 A manager may use the Profit and Loss account when managing a business in the following ways:
Monitoring whether the business has made a profit or any loss over a given financial year.
To get the sense of how the profit or loss in 1) came about by categorizing costs between
the operating costs and the cost of sales
Hence decide on how to increase the profit margin,
Similarly, identify further areas that require reduction in expenditure budget
Do all these checks and balances all the time. (5)

2.4 Banks make profits in the following ways:

Service fees charge to clients for accessing any of their services.
Interest fee-charges for example on overdrafts, personal and home loans.
Invests in assets such as buildings which are then rent out to private and public businesses
Banks get money from customers investments such as fixed deposits
Banks purchase money from the Reserve Bank which in turn, rent out to businesses and
individuals.
In general, banks have both assets and liabilities on which their core business is based. (5)

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QUESTION 3 (25 marks)

3.1 Chrissy buys a Dell Laptop for R15 500.00

3.1.1 She is offered a 15 % discount and pays:
Purchase Price = Cost price 15.75 % discount
= R15 500 15.75 % of R15 500
= R15 500 - 0,1575 x R15 500
= R15 500 R2441.25
= R13 058.75 (5)

3.1.2 An 11% discount is offered if Chrissy pays half of original amount. This is followed
by a further 4% discount on the balance.

11% discount when 50% upfront deposit of R15 500 is made is

= 11% of R15 500
= 0,11 x R15 500
= R1705
Then a further 4% discount on balance after a 50% deposit is made:
= 4% of of R15 500
= 0.04 x 0.5 x R15 500
= R310

Hence total discount paid for this option is:

Chrissys discount = R1705 + R310
= R2015 (6)

3.1.3 Discounts offered in 3.1.1 option is R2325 and in 3.1.2 is R2015.

One can clearly, see that 3.1.1 option offers Chrissy a good discount compared
to option 3.1.2. The calculations above attest to this.
Concepts addressed: mark-up price, discount, net price, cost price, selling price.(6)

3.2 Commission rates: 5 % on first R20000.00 and

7 % on any sales made over and above R20000.00
Therefore commission on R65000 sales:
= Commission on R20000 + Commission on R45000
= 5 % of R20000 + 7 % of R45000
= 0,055 x R20000 + 0.075 x R45000
= R1100 + R3375
= R4475 (8)

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QUESTION 4 (25 marks)

4.1 A budget is a listing of ones expected monthly expenses and anticipated earnings.
It is of critical importance for people to budget for their spending according to the income
They get because:
one gets to know what you can afford to buy
one is able to take control of his/her finances
the financial records get neatly organized
for accountability purposes
assist you from avoiding to get into unnecessary debts (10)

4.2 Given the currency-exchange table below as on 20 July 2016.

Currency South African rand (R)

US Dollar ($) R14.708
British Pound () R19.918
Euro () R16.436

4.2.1 R125 000.00 will be worth:

In the United States of America (US)
R14.708 = 1
R125000.00 = ? (more)

125000.00
x 1 = 8498.78
14.708

In Great Britain (UK)

R19.918 = 1 $
R125000.00 = ? (more)

125000.00
x 1 $ = 675.73 $
19.918

In Euro Zone (Region)

R16.436 = 1
R125000.00 = ? (more)

125000.00
x 1 = 7605.26 (6)
16.436

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 4.2.2. Drawing on the above calculations:
1 buys R19.9118
2000 will buy more
thus 2000 x R19.918 = R39 836.00

Then if 1 = R16.436
? = R39836.00 (equivalent to 2000)

39836.00
= x 1
16.436

= 2423.70 (5)

4.2.3 In terms of the South African situation, one pays less for the
purchase of foreign goods when the rand/dollar exchange rate
strengthens (rands buying power increases).
Similarly, one pays more for the purchase of foreign goods when
the rand/dollar exchange rate increases weakens. (4)

QUESTION 5 (20 marks)

Ashley takes out a loan of R450 000 at an effective interest rate of 14% p.a. in
order to purchase a town house. She repays the loan with equal monthly
instalments of R7 500, starting one month from the granting of the loan. The
interest is compounded monthly.
5.1 Show that the nominal interest rate in approximately 13.17% p.a. (3)

( + 1 1) =
12
12( 0.14 + 1 1 =
0.1317 =
13.17% =

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5.2 To determine:

5.2.1 Time span of the loan in months; (4)

[ ( + ) ]

Using P =

P = R450 000; i = 14% = 14/100 = 0,14; f = 12 months in a year;
x = R7500
0.14
[1 ( 1 + )12 ]
12
450 000 = 7500. 0.14
12
450 000/7500 = [1 (1.01167) -12n] / 0.01167
60 x 0.01167 1 = - (1.01167)-12n
0.2998 = (1.01167)-12n apply log on both sides
log (0,2998) = log ((1.01167)-12n
log(0.2998) = -12n . log(1.01167)
log(0.2998)/log(1.01167) = -12n
-103.826493/-12 = n
8.652 = n
8.65 yrs = n
(i.e 104 months approximately)

5.2.2 The value of the last payment of the loan; (3)

[(+ ) ]

Using F =

F = ? future value; x = R7500; i= 14 % n = 8.65 yrs;
f=12 months in a year; nf = 104 months

014 104
[(1+ ) 1]
12
F1 = 7500 0.14
12
[ ( 1 + 0.01167 )104 1]
= 7500 0.01167
= 7500 (2.34227862 /0.01167)
= R1 505 320.45
014 103
[(1+ ) 1]
12
F2 = 7500 0.14
12
[ ( 1 + 0.01167 )103 1]
= 7500 0.01167
= 7500 (2.303724159 /0.01167)
= R1 480 542.52
The value of last payment = F1 - F2
= R1 505 320.45 - R1 480 542.52
= R24 777.93

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 5.3.1 Interest paid in the first month of the loan: (2)
=
0.14
= 450000
12
= 5 400

OR = (+ )

= R450000(1.012)1
= R455400.00
Interest I = A P
= R455 400 R450 000 = R5 400

5.3.2 Interest paid in the first year of repayment: (3)

Given: f=12 months; n = 1 yr; i = 14% and
x = R7500; thus nf = 1x12 = 12

[(+ ) ]

Using F =

[ ( 1 + 0.01167 )12 1]
= 7500
0.01167
= 7500 x (0.1493874735/0.01167)
= 7500 x 12,80098317
= R96 007.37

5.3.3. Interest paid in total for the loan (over a period of 8.65 years
i.e. 104 months. (5)
F104 months = R1 505 320.45 and P = R450 000.00
Total interest on the loan = F104 months - P
= R1 505 320.45 - R450 000.00
= R1 055 320.45

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QUESTION 6
Lesson Plan
Grade 7
Topic: Profit, Loss and Discount

MARKING RUBRIC (Guidelines and marks)

Plan the "before" phase.
How will you introduce the lesson? (2)
Plan the "during" phase. (3)
Describe the activities that will enable the learners to discover the
differences between the concepts. Include possible hints you might (10)
give to assist learners.
The worksheet (5)
The Memorandum (5)
Plan the "after" phase.
How will the learners report their findings? What questions will you ask (5)
to assess their understanding?
NOTE:
The format of the lesson plan must enable the teacher to use it without
having to add any inputs of his or her own. For example, do not only
say: I will have an assessment activity that will assess their
understanding. Include the worksheet for an assessment activity.

NB: This question is NOT about PROFIT and LOSS Account, as many of you
appear think that way. At grade 7, really we do not teach this concept. Rather
it is specifically and Selling and Buying where issues of profit, loss and discounts
are engaged extensively.

The question is purely testing your lesson planning skills and how you allocate
time into various sections of the planning, the actual content/concepts related
questions that you are using in the process.

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