FINANCE. Show 1: Personal and Business Finance Show Notes. February 02, 2012 FINANCE FINANCE FINANCE FINANCE FINANCE. Jul 4 05:19 AM.

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1 Today we will look at: General Finance questions Working with costs Understanding different financial scenarios Savings Simple Interest Compound Interest Costs: A group of five grade 12 students, who are currently taking Mathematical Literacy at their school, are interested in investigating the prospect of running a taxi service between Franschhoek and Paarl. The vehicle they are considering to buy can accommodate 16 passengers. The students are trying to work out how much money they will make on each single trip. It is decided that in order to compete against other taxis they can only charge R8 per person. 2) They estimate their expenses to be as follows for each single trip: Petrol 3 litres of petrol Driver R30 Maintenance of vehicle R15 If the price of petrol is currently R6,43 per litre, determine their total cost per trip. Using the table below, calculate the answers for ( to (e). 3) How many passengers must be in the bus before the trip is regarded as profitable? Remember: The cost per trip = R64,29 4) What profit will be made if the bus is full? Remember there are 16 passengers on a full bus and each pays R8,00. The cost of each trip = R64,29 Each passenger pays R8 per trip 1

2 5) How many passengers are on the bus if the profit is R23,71? 6) On a particular trip a profit of R32,29 is made. What does the number R32,29 indicate? How many passengers is the bus carrying to make a profit of R32,29 Remember: The cost per trip = R64,29 Each passenger pays R8 per trip 7) The students have no money to buy a bus. Feeling sorry for the students, a parent buys the vehicle for cash and only expects the students to pay back R5000 a month for the next 36 months, provided the parent can use the bus on Fridays and over the week ends. The students are excited, but they need to determine if they can afford this. The students predict that they will be able to make 16 single trips a day. Trips 1, 3, 5, 7, 9, 11, 13 and 15 are from Franschhoek to Paarl Trips 2, 4, 6, 8, 10, 12, 14 and 16 are from Paarl to Franschhoek They further predict that the occupancy of the bus per trip will be as follows: Trips 1, 2, 3, 4, 13, 14, 15, and 16 will be 100% full (i.e. 16 passengers) Trips 5 and 12 will be 87,5% full Trips 6 and 11 will be 75% full Trips 7, 8, 9 and 10 will be 62,5% full Determine how many passengers will be on the bus if it is: 7) The students have no money to buy a bus. Feeling sorry for the students, a parent buys the vehicle for cash and only expects the students to pay back R5000 a month for the next 36 months, provided the parent can use the bus on Fridays and over the week ends. The students are excited, but they need to determine if they can afford this. The students predict that they will be able to make 16 single trips a day. Trips 1, 3, 5, 7, 9, 11, 13 and 15 are from Franschhoek to Paarl Trips 2, 4, 6, 8, 10, 12, 14 and 16 are from Paarl to Franschhoek They further predict that the occupancy of the bus per trip will be as follows: Trips 1, 2, 3, 4, 13, 14, 15, and 16 will be 100% full (i.e. 16 passengers) Trips 5 and 12 will be 87,5% full Trips 6 and 11 will be 75% full Trips 7, 8, 9 and 10 will be 62,5% full Based on the information above, show by means of calculations that the students are predicting to carry 220 passengers a day. i) 87,5% full ii) 75% full iii) 62,5% full 7) The students have no money to buy a bus. Feeling sorry for the students, a parent buys the vehicle for cash and only expects the students to pay back R5000 a month for the next 36 months, provided the parent can use the bus on Fridays and over the week ends. The students are excited, but they need to determine if they can afford this. The students predict that they will be able to make 16 single trips a day. Trips 1, 3, 5, 7, 9, 11, 13 and 15 are from Franschhoek to Paarl Trips 2, 4, 6, 8, 10, 12, 14 and 16 are from Paarl to Franschhoek They further predict that the occupancy of the bus per trip will be as follows: Trips 1, 2, 3, 4, 13, 14, 15, and 16 will be 100% full (i.e. 16 passengers) Trips 5 and 12 will be 87,5% full Trips 6 and 11 will be 75% full Trips 7, 8, 9 and 10 will be 62,5% full If the students did manage to reach their target of 220 passengers in 16 trips a day, then calculate the estimated profit for one day. d) If the bus was to operate four days a week (remember the agreement on the loan for purchasing the bus was that the parent uses the bus on Fridays and over the week end), determine the students profit for a week. Remember: The cost per trip = R64,29 Each passenger pays R8 per trip 2

3 e) To be safe, the students work on a weekly profit of R2500. If there are 4 weeks in a month, how much profit would each student (remember there are 5 students) make in a month after paying off the bus instalment of R5000? f) The parent that loaned the money for the bus no longer needs the bus on Fridays and lets the students use it, provided that they pay him R1000 extra a month. Should the students consider this option? With the use of calculations explain your answer. g) The price of petrol goes up by R0,52 per litre. Calculate the additional expense per trip. (Remember three litres of petrol are used per trip). If R250 is invested in a bank for three years at 11,5% per year at simple interest, then find: the interest earned every year. 3

4 If R250 is invested in a bank for three years at 11,5% per year at simple interest, then find: the interest earned after the three years. If R250 is invested in a bank for three years at 11,5% per year at simple interest, then find: the final balance in the bank after the three years. If the same R250 was invested for three years at 11,5% per year compounded annually, then determine the final balance in the bank after the three years. As a gift for passing Grade 7, Thabo was given R1000. He decides to take the money and invest it for five years so that he can use it when he finishes school. He has three ideas: Idea 1 He can loan the money to his parents at 15% p.a. simple interest, for the five years. Idea 2 He can put the money in the bank that offers 12% interest, compounded monthly for the five years. Idea 3 He sees that there is an advert which promises that if you invest R1000 with this particular company, called Wanna Alota Marcha?, you will be given 24% p.a. compounded half yearly. Show by means of calculations which offers the best interest. As a gift for passing Grade 7, Thabo was given R1000. He decides to take the money and invest it for five years so that he can use it when he finishes school. He has three ideas: Idea 1 He can loan the money to his parents at 15% p.a. simple interest, for the five years. Idea 2 He can put the money in the bank that offers 12% interest, compounded monthly for the five years. How much money will need to be deposited if Susan needs R900 in fours years time and if the bank offers: 10% interest, compounded annually? Idea 3 He sees that there is an advert which promises that if you invest R1000 with this particular company, called Wanna Alota Marcha?, you will be given 24% p.a. compounded half yearly. Would you use idea 3? Explain your answer. Idea 3 He sees that there is an advert which promises that if you invest R1000 with this particular company, called Wanna Alota Marcha?, you will be given 24% p.a. compounded half yearly. 4

5 How much money will need to be deposited if Susan needs R900 in fours years time and if the bank offers: 10% interest, compounded monthly? Jean wins a competition where he wins R 250. If Jean wants to double his money in three years, then what interest will he need from the bank if the bank pays: annual simple interest? Jean wins a competition where he wins R 250. If Jean wants to double his money in three years, then what interest will he need from the bank if the bank pays: interest compounded annually? Jean wins a competition where he wins R 250. If Jean wants to double his money in three years, then what interest will he need from the bank if the bank pays: interest compounded monthly? Fred buys a new car for R He decides that he will replace his vehicle in two years time with the latest model. He is told the following: His car will depreciate at 22% compounded annually The price of new vehicles will increase at a rate of 16% compounded monthly How much will Fred s car be worth after two years? Fred buys a new car for R He decides that he will replace his vehicle in two years time with the latest model. He is told the following: His car will depreciate at 22% compounded annually The price of new vehicles will increase at a rate of 16% compounded monthly How much will the new model cost Fred in two years time? 5

6 Fred buys a new car for R He decides that he will replace his vehicle in two years time with the latest model. He is told the following: His car will depreciate at 22% compounded annually The price of new vehicles will increase at a rate of 16% compounded monthly How much money will Fred be short if he wants to pay for the new model with his current car? d) Fred decides that he wants to pay cash for his new car in two years time, so he needs to save so he can pay off the amount that he will be short (answer to question above). He knows his bank offers 12% p.a. compounded monthly on any money he saves. How much will Fred need to save each month? Use the formula: F = x[(1 + i)n 1] i Where: F = the future value of the savings x = the regular payment i = interest rate, divided by the number of payments a year n = number of payments In summary: General Finance questions Working with costs Understanding different financial scenarios Savings Simple Interest Compound Interest 6