WORKSHEETGeneral2Mathematics

TopicAreas:
FinancialMathematics
FM5AnnuitiesandLoanrepayments

Teacher:PETERHARGRAVES
Source:HSCexamquestions
ExamEquivalentTime:28.5minutes
WorkedSolutions:Included
Note:Eachquestionhasdesignatedmarks.Usethisinformationasbothaguidetothequestion'sdifficulty
andasatimingindicator,wherebyeachmarkshouldequateto1.5minutesofworking(examination)time.

Questions
1. FinancialMaths,2UG2014HSC21MC
Atableoffuturevalueinterestfactorsisshown.

Acertainannuityinvolvesmakingequalcontributionsof$25000 intoanaccountevery6
monthsfor2yearsataninterestrateof4% perannum.
Basedontheinformationprovided,whatisthefuturevalueofthisannuity?
(A)$50500
(B)$51000
(C)$103040
(D)$106162
 2. FinancialMaths,2UG2011HSC27d
Josephineinvests$50000 for15 years,ataninterestrateof6% perannum,compounded
annually.
Emmainvests$500 attheendofeachmonthfor15 years,ataninterestrateof6% per
annum,compoundedmonthly.
Financialgainisdefinedasthedifferencebetweenthefinalvalueofaninvestmentandthe
totalcontributions.
Whowillhavethebetterfinancialgainafter15 years?UsingtheTablebelow*andappropriate
formulas,justifyyouranswerwithsuitablecalculations.(4marks)

*Questionadjustedtoreflecttheupdatedsyllabus.

3. FinancialMaths,2UGFM5S1
Thetablebelowshowsthepresentvalueofanannuitywithacontributionof$1 .

(i) Fionapays$3000intoanannuityattheendofeachyearfor4yearsat2% p.a.,
compoundedannually.
Whatisthepresentvalueofherannuity?(1mark)
(ii) IfJohnpays$6000intoanannuityattheendofeachyearfor2yearsat4%
p.a.,compoundedannually,ishebetteroffthanFiona?Usecalculationstojustify

youranswer.(2marks)
4. FinancialMaths,2UGFM5S3
Dominiquewantstosave$15000 touseasspendingmoneywhenshetravelsoverseasin2
yearstime.
Ifsheinvests$3500every6monthsintoanaccountearning4% p.a. ,compoundedhalf
yearly,willshehaveenough?
Usethetablebelowtojustifyyouranswer.(2marks)

 5. FinancialMaths,2UG2009HSC27a
Thetableshowsthefuturevalueofa$1 annuityatdifferentinterestratesoverdifferent
numbersoftimeperiods.

(i) Whatwouldbethefuturevalueofa$5000peryearannuityat3% perannumfor
6years,withinterestcompoundingyearly?(1mark)
(ii) Whatisthevalueofanannuitythatwouldprovideafuturevalueof$407100 after
7yearsat5% perannumcompoundinterest?(1mark)
(iii) Anannuityof$1000perquarterisinvestedat4% perannum,compounded
quarterlyfor2years.Whatwillbetheamountofinterestearned?(3marks)

 6. FinancialMaths,2UGFM5S2
Camillabuysacarfor$21000 andrepaysitover4yearsthroughequalmonthlyinstalments.
Shepaysa10% depositandinterestischargedat9% p.a.onthereducingbalanceloan.
UsingtheTableofpresentvalueinterestfactorsbelow,wherer representsthemonthly
interestandN representsthenumberofrepayments

Calculate
(i) Themonthlyrepayment,$P ,thatCamillamustpaytocompletetheloanafter4
years(tothenearest$).(3marks)
(ii) Thetotalinterestpaidoverthelifeoftheloan.(1mark)

Copyright200914TheStateofNewSouthWales(BoardofStudies,TeachingandEducationalStandardsNSW)
WorkedSolutions
1. FinancialMaths,2UG2014HSC21MC
4 contributions of $25 000 made

Annuity period = 6 months

Meanmark43%
4%
Rate (per annuityperiod) = = 2 %
2

# Periods = 4 (4 x 6 months in 2 years)

Table value = 4.1216

Annuity Value = 4.1216 25000 = $103040

2. FinancialMaths,2UG2011HSC27d
Josephine
Meanmark42%
COMMENT:Note
15
Investment = 50000(1 + 0.06) thatcompoundinterestvs
annuitycomparisonsare
commonlytested.
= 50000(1.06)
15

= $119827.91

Financial gain = 119827.91 50000

= $69827.91

Emma

Monthly interest rate = 6% 12 = 0.5%

# Monthly Payments = 12 15 = 180

Annuity Factor = 290.8187 (from Table)

Investment = 500 290.8187

= $145409.35

Financial gain = 145409.35 total contributions

= 145409.35 (500 12 15)

= 145409.35 90000

= $55409.35

Josephine will have the better financial gain.
 3. FinancialMaths,2UGFM5S1
(i)Table factor whenn = 4, r = 2%

3.8077

P V A(Fiona) = 3000 3.8077

= $11423.10

(ii)Table factor whenn = 2, r = 4%

1.8861

P V A(John) = 6000 1.8861

= $11316.60

Fiona will be better off because

herP V Ais higher.

4. FinancialMaths,2UGFM5S3
Interest rate(6 monthly) = 4% 2 = 2%

n = 4(6 month periods in 2 years)

FVA factor = 4.122(from Table)

FVA = 3500 4.122

= $14427

Dominique will not have saved

enough to reach$15000.

 5. FinancialMaths,2UG2009HSC27a
(i)Table factor whenn = 6,r = 3 %

6.4684

F V = 5000 6.4684

= $32342

(ii)Table factor whenn = 7,r = 5 %

8.1420
Meanmark45%
MARKER'SCOMMENT:A
LetA = annuity
commonerrorwastomultiply
$407,100by8.1420ratherthan
FV = A 8.1420 divide.

FV
A =
8.1420

407100
=
8.1420

= $50000

(iii)n = 8(8 quarters in 2 years)

4 %
Meanmark31%
r = = 1 % per quarter
4 MARKER'SCOMMENT:When
questionsaskedfortheinterest
Table factor 8.2857 paidonannuities,rememberto
subtractthetotalprincipal
FV = 1000 8.2857 amountscontributed.

= 8285.70

Interest = F V (annuity) Principal

= 8285.70 (8 1000)

= 285.70

Interest earned is $285.70

 6. FinancialMaths,2UGFM5S2
(i)Deposit = 10% 21000 = 2100

Loan Value = 21000 2100

= 18900

9%
Monthly interest rate = = 0.0075
12

# Repayments = 4 12 = 48

PVA Factor = 40.18478(from Table)

18900
Monthly repayment($P ) =
40.18478

= 470.32...

= 470(nearest $)

Camilla must repay$470 per month.

(ii)Total Repayments

= 48 470

= $22560

Interest paid over loan

= 22560 18900

= $3660

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