9.

FINANCE, GROWTH &

DECAY
Simple Interest
Compound Interest with Effective Interest Rates
Compound Interest with Nominal Interest Rates
Conversion Formula
Timelines
Simple & Compound Growth
Simple Depreciation
Compound Depreciation
1
SIMPLE INTEREST
Interest is calculated on the original amount
Interest remains constant over the period of
time
2
You try!
Peter invests R4 000 for a period of 6 years at
7,5% p.a. simple interest. Calculate the value
of Peters investment at the end of the 6 years.

Example
Paula would like to have R6 800 in her savings
account at the end of 48 months. If she earns
12% simple interest p.a., determine how much
she must initially invest.

3
COMPOUND INTEREST with
EFFECTIVE INTEREST RATES
Interest is calculated on the original amount
plus the interest added at each time interval
Effective interest rate is calculated per annum
The Power of
Compound Interest
4
You try!
Romy borrows R12 500 for 2 years at 8,4% p.a.
compounded. Determine how much Romy
owes after 2 years.
Example
Ronan buys a car for R90 000 and wants to pay
it back in 4 years at a compounded interest rate
of 6% p.a. Determine how much interest Ronan
ends up paying on the car.

5
COMPOUND INTEREST with
NOMINAL INTEREST RATES
6
COMPOUND INTEREST with
NOMINAL INTEREST RATES
When working with nominal interest rates,
the compound interest rate formula is altered
to accommodate the different time intervals at
which interest is calculated
7
You try!
Liora invests R9 750 for 3 years at 6% p.a.
compounded monthly. Determine the value of
Lioras investment after 3 years.
Example
Determine how much Jason owes if he borrows
R10 000 and pays it back over 2 years at an
interest rate of 7,5% p.a. compounded quarterly.
Working with
Nominal
Interest Rates
8
CONVERSION FORMULA
To convert between effective & nominal interest rates:
9
You try!
Which is the better interest rate for saving:
10,5% p.a. or 10,1% compounded quarterly?
Example
Which would be the better interest rate for a loan:
9,8% p.a. or 9,76% p.a. compounded monthly?
Working with the
Conversion
Formula
10
TIMELINES
Timelines are used to visualize multiple
deposits / withdrawals and also multiple
changes in interest rates

No marks are given for timelines but they
are helpful!

Always remember to round-off your FINAL
answer only results in greater accuracy!
11
R8 000 is deposited into a savings account. One
year later, R1 500 is withdrawn. Calculate the
value of the account at the end of 4 years, if
interest is calculated at 11% p.a. compounded
quarterly.
Example
T
0
T
1
T
4
11% p.a. compounded quarterly
R8 000 (R1 500) ??
12
Example (cont.)
13
You try!
Matthew invests R20 000 into an account. Two
years later, he makes another deposit of R45 000.
The following year, he withdraws R17 000 to buy
an entertainment system. If interest is calculated
at 8,2% p.a. compounded monthly, determine
how much Matthew has saved after 7 years.
T
0
T
2
T
3
T
7
8,2% p.a. compounded monthly
R20 000 R45 000 (R17 000) ??
14
R1 700 is deposited into a savings account and
earns interest at 7% p.a. compounded semi-
annually. After 3 years, the interest rate goes
up to 8,5% p.a. compounded quarterly.
Determine the value of the account after 5
years.
Example
T
0
T
3
T
5
7% p.a. semi-annually 8,5% p.a. quarterly
R1 700 ??
15
Example (cont.)
16
You try!
Kayla borrows R16 000. For the first 3 years, the
interest is calculated at 5,5% p.a. compounded
monthly. Thereafter, for the next 4 years, interest
is calculated at 6,2% p.a. compounded daily.
Determine how much Kayla owes after 7 years.
T
0
T
3


T
7
5,5% p.a. monthly 6,2% p.a. daily
R16 000 ??
17
SIMPLE & COMPOUND
GROWTH
Real-life scenarios where growth occurs
based on either the simple interest formula
or the compound interest formula
18
You try!
5000 bacteria in a petri dish multiple at a rate
of twice the original number every day. How
many are there after a week.

Example
A certain type of plastic expands at a rate of 4%
per hour. If the volume of the plastic starts at
75 cm
3
, then determine the size after 6 hours.
19
SIMPLE DEPRECIATION
Depreciation or decay occurs based on the
simple interest formula
Also known as Straight-line depreciation
20
Graph of Simple Depreciation
Since depreciation is constant, it is a straight
line graph e.g.
Value of Computer
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2200
Year 1 Year 2 Year 3 Year 4
21
You try!
A companys computer assets depreciate at
10% p.a. If the value started off at R20 000,
determine the value of the assets after 3 years.
Example
If the depreciated value of a car is of the
original value, determine the original cost of
the car after 4 years, based on straight line
depreciation of 7% p.a.
22
COMPOUND DEPRECIATION
Depreciation or decay occurs based on the
compound interest formula
Also known as Reducing-balance depreciation
23
Graph of Compound Depreciation
Since depreciation is exponential, it is a
decreasing exponential graph e.g.
24
You try!
A car worth R225 000 depreciates by 6,6% p.a.
based on a reducing balance. Determine the
value of the car after 4 years.
Example
Determine the original value of a companys
assets if it depreciated to R144 000, after 3
years, at 4,5% p.a.
compounded.
Compound Growth and
Decay Word Sums
25