Compound interest

When any transaction is done, we either make profit or a loss. When an article is sold at a price greater than the price it was bought, then a profit is made. On the other hand, if an article is sold at a price less than the cost, we have made a loss.

Hence,

Profit = selling price – cost price

Loss = Cost price – selling price

In commercial transactions, profit and loss are usually expressed as a percentage of the cost price

1. Adamu bought a pair of shoes for N2,000. Find his percentage loss if he sold it for #1 800?
2. Find the cost price of each of these selling prices
3. N540 at a profit of 25%
4. N2,500 at a loss of 15%

COMPOUND INTEREST:

In compound interest, interest is calculated and added to the principal at the end of each interval, thus the principal increases and so the interest becomes larger for each interval. Most saving schemes give compound interest not simple. The total value at the end of the investment is the compound amount.

Thus,

Compound amount = Compound interest + Principal

Example:

1. Calculate the compound interest on N6, 000 for 4 years at 10% per annum. What is the compound amount?

CLASS ACTIVITY

1. Find the compound amount and interest on N40, 000 at 15% for 2 years.
2. Find the amount that #40 000 becomes if saved for 3years at 6% per annum.

DEPRECIATION

Most of items such as radios, cars clothing, houses, and electrical goods lose value as time passes. This loss in value is called depreciation. Depreciation is usually given as a percentage of the item’s value at the beginning of the year

Example:

1. A car costing N680, 000 depreciates by 25% in its first year and 20% in its second year. Find its value after 2 years.

INFLATION

Due to rising prices, money loses its value as time passes. Lose in value of money is called Inflation. Inflation is usually given as the percentage increase in the cost of buying things from year to the next.

 Example:

1. How long will it take for prices to double if the rate of inflation is 20% per annum?

Solution:

PRACTICE EXERCISE

1. Find the simple interest on the following:
2. a) ₦4 500 for 3years at 6% per annum
3. b) $680 for 2 ½ years at 5% per annum
4. Nkedirim collects a loan of ₦500 000 at an interest rate of 20% per annum, what amount will she pay back at the end of the year?
5. Calculate the compound interest and compound amount on £960 000 for 3years at 3% at the end of first year, 4% at the end of second year and 5 ½ % at the end of third year to 2 decimal places
6. The price of a house was ₦23 400 000 in 2010. At the end of each year, the price increased by 6%. Find the price of the house after 3years

ASSIGNMENT

1. At what time will a principal of ₦30 000 yield an interest of ₦5 000 at the rate of 5%?
2. Akpan borrowed ₦12 000 at 3% simple interest for 2years. How much will he pay all together?
3. Find the principal that yields ₦3000 in 5years at 4% per annum simple interest.
4. A person saves ₦3 000 at 4 ½ % compound interest. She adds ₦800 to her amount at the end of each year. Find her total savings after 2 years.
5. A new car costs $64 000. It depreciates by 25% in the first year, 20% in the second year, and 15% in each of the following years. Find the value of the cat to the nearest $50 after 4years.