4024/21 May/June 2020 Question 4: Compound Interest

Question 1

Calculate the amount after 5 years of compound interest on $6000 at 2.5% per year, then subtract $4200 spent on the holiday.

Accepted Answer

After 5 years: 6000 × (1 + 2.5/100)⁵ = 6000 × 1.025⁵ = 6788.45 Left = 6788.45 − 4200 = $2588.45 ≈ $2590 Answer: 2590 or 2588 to 2589

Question 2

Convert $800 to MYR at 3.16, subtract 2250 MYR spent, convert the remainder back at 3.27, giving dollars to the nearest dollar.

Accepted Answer

800 × 3.16 = 2528 MYR 2528 − 2250 = 278 MYR left 278 ÷ 3.27 = 85.01… $85 Answer: 85

Question 3

Given $1500 grows to $1598.85 over 3 years at compound rate p%, find p correct to 2 decimal places.

Accepted Answer

Let k = 1 + p/100, the yearly multiplier 1500 × k³ = 1598.85, so k³ = 1.0659 k = ∛1.0659 = 1.021501… p = (1.021501… − 1) × 100 = 2.15 Answer: 2.15

4024/21 May/Jun 2020, Question 4: Compound Interest