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9.1 Introduction

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9.2 Simple interest

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Chapter 9: Finance and growth

9.1 Introduction (EMA6K)

  • Content covered in this chapter includes the simple and compound interest formulae. These formulae are then applied to hire purchase, inflation and population growth. A short introduction to exchange rates is included.
  • For compound interest learners are not expected to solve for \(n\).
  • Discuss terminology relating to simple and compound interest such as principle amount, accumulated amount, etc.
  • It is very important to emphasise not rounding off calculations until final answer as this affects accuracy.
  • Learners should do calculations in one step using the memory function on their calculators.

In this chapter, we apply mathematical skills to everyday financial situations.

If you had \(\text{R}\,\text{1 000}\), you could either keep it in your piggy bank, or deposit it into a bank account. If you deposit the money into a bank account, you are effectively lending money to the bank. Because you are lending the bank money, you can expect some extra money back. This is known as interest. Similarly, if you borrow money from a bank, then you can expect to pay interest on the loan. Interest is charged at a percentage of the money owed over the period of time it takes to pay back the loan. This means that the longer the loan exists, the more interest will have to be paid on it.

The entrance to the Johannesburg Stock Exchange (JSE) located in Sandton, Johannesburg - the financial centre of South Africa. The JSE is Africa's largest stock exchange and the \(19^{\text{th}}\) largest in the world. Each month, more than 60 billion rand worth of shares are traded on the JSE.

The concept is simple, yet it is core to the world of finance. Accountants, actuaries and bankers can spend their entire working career dealing with the effects of interest on financial matters.

Interest

In finance, interest is the money charged for borrowing money. It is usually expressed as a percentage of the borrowed amount.

Some of the videos for this chapter use dollars instead of rands in the examples. Because both rands and dollars are decimal currencies you can simply change the currency symbol and the calculations will work out the same.

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9.2 Simple interest