Question

Question 10

A debt of RM6,500 due 5 months ago and another RM12,750 due in 13 months are to be settled by making two equal payments, one at the end of four months, one at the end of seven months. Find the size of payment using, the four month as the focal date. Assuming money is worth 9% per annum simple interest.

Question 11

Find the value in 3 years’ time of RM16,200 invested at 5% compounded annually. In the following 2 years, the interest rate is expected to rise to 8%. Find the value of the investment at the end of the 5 years period, and find overall percentage increase.

Answer 1

(10) Let the equal payments made be X each

Interest rate = 9% = 0.09/12 monthly

Hence, Value of Payments at four month = X + X/(1+0.09/12)⁹ = 1.93X

Value of settlement amount at fourth month = 6500*(1+0.09/12)⁹ + 12750/(1+0.09/12)⁹ = RM18872.93

Hence, 1.93X = 18872.93

=> X = RM9778.72

(11) Investment Amount = RM16200

Rate of Interest for first three years = 5%

Investment amount at end of Year 3 = 16200*(1.05)³ = 18753.53

Rate of Interest for Next 2 years = 8%

Investment Amount at end of year 5 = 18753.53*(1.08)² = RM21874.12