Lyn Zhang, 466 Chapter 9 » Revision: Recursion and financial modelling a Exam 1 style questions 1A sequence of numbers is generated by the recurrence relation shown below, das =e AEG Adz I] A333 What is the value of A3? A2 BS el pi7 Ao Z2\ Consider the recurrence relation below. To = 6000, Tnx = Ty +270 ‘The recurrence relation could be used to model a A simple interest investment of $6000 with an annual interest rate of 0.045%. B. simple interest investment of $6000 with an annual interest rate of 0.45%. © }imple interest investment of $6000 with an annual interest rate of 4.5%. compound interest investment of $6000 with an annual interest rate of 0.45%. “compound interest investment of $6000 with an annual interest rate of 4.5% /\, The value of an investment, in dollars, after m months, Vp, can be modelled by the recurrence relation shown below. Yaz 7.2 Ym? = =o b Vo = 12000, Vai = RVs =) 006 000, Raat 22 =po0h This investment earns compound interest at the rate of 7.2% per annum, compounding, monthly. What is the value of R in this recur -e relation? A 0.006 B 0.072 (ee D 1072 EB 172 The value of a commercial fridge, purchased for $9000, is depreciated by 10% per ‘annum using a reducing balance method. Ie =e Recursive calculations can determine the value of the fridge after n years, Vy. Which one of the following recursive calculations is not correct? A Vo = 9000 v BV,=0.9x9000 ~ © ¥,=09x8100 “ BVs=09%7290 Vin prinslagvo inst pyre +21 FV=146 86.98 ENM.=09x6560 X Yq = 491920557091 Ve =#.907 24.9 5 Lorraine has taken out a personal loan of $14 000, - Interest for this loan compounds quarterly and Lorraine makes no repayments, After one year she owes $14 686.98. ‘The effective annual rate of interest for the first year of Lorraine’s loan is closest to Ase Base) Moe oe sae jtocopying is restricted under law and this material must not be transferred to anather pay9A Exam 1 style questions 467 a Luke has purchased a caravan for $75 000, He depreciates the value of the earavan using the reducing balance method. For the fist vo years of reducing balance depreciation, the annual depreciation rate was 12%. 1-25 0.838 EV, = Juv x0,.88 [Lake then changed the annul depreciation 1 per cet After three more years of reducing balance depreciation, the value a the caravan was $089 $41638.56. EV p= 41438-5b6> SS080xXR> y= 10.5 ‘The changed depreciation rate, d per cent, is closest to pyre apesh AM B9S% © 10% (Pws%e 115% ZA\ Tran invests $375,000 in an account that pays interest at the rate of 3.6% per annum, FV compounding monthly. y= )2- He makes additional payments of $400 each month into this account. ‘The value of Tran's account, in dollars, after n months, T,, can be modelled by the xfie x=4ee3b T, = 375.000, Ty = 1.0037, + 400 recurrence relation shown below. ey ‘The balance of Tran’s account first exceeds $650.000 at the end of month Als B 16 © 143 D 144 uss 8 Carlos has borrowed $54 000 to go on a holiday. nel2 Interest on this loan is charged at the rate of 7.9% per annum, compounding monthly. Carlos intends to repay the loan over five years with 60 monthly repayments. After 59 equal repayments of $1092, he finds that a Small adjustment tothe final repayment is required to fully repay the loan to the nearest cent. Compared to the 59 earlier repayments, the final repayment will be Firwal = |! 17-1 A $17.81 lower yy 21092 = 25012 B $25.12 lower © $17.81 higher (0825.12 higher E $1109.81 higher [750 x0.002= 350 Consider the recurrence relation shown below HOMME LEO Vo = 175000, V+ = 1.002V,, - 350 yrorxn= 24% This recurrence relation could be used to determine the value of (Wa perpetuity with an interest rate of 2.4% per annum, compounding monthly. B an annuity with an interest rate of 2% per annum, compounding annually. © an annuity investment with an interest rate of 2% per annum, compounding monthly, D an item depreciating at a flat rate of 2.4% per annum of the purchase price. E a compound interest investment earning interest atthe rate of 0.24% per annum, of the purchase price. ISBN 978-1-009-11041-9 ‘© Peter Jones etal 2023 ‘Cambridge University Pr Photocopying i ratricted under law and this material must not be transferred to anather party.488 Chapter 9 » Revision: Recursion and financial modelling Da Witter has a reducing balance loan. Six lines of the amortisation table for Witter’s loan are shown below. Payment number Payment Interest Principal reduction Balance | . B 402148.19 |gesrag yp) OO=OH 14 9500.00 1742.64 7957.36 394 390.83 | 0.4333 15 9500.00 1709.03 7790.97 386 599.860) 0.4333 16 9500.00 1675270 7824.73 378773.134| .08$D ” 9500.00 1609.79 7890.21 37084492 Jo.4.25° 18 9500.00 1576.26 7923.14 362 961.18 ‘The interest rate for Witter’ loan changed after one ofthese repayments had been made, ‘The frst repayment with the lower interest rate was repayment number Als @is © 16 Diz E18 14 \ Dina invested $225 000 in an annuity. FV how: ‘This investment earned interest atthe rate of 5.2% per annum, compounding quarterly Immediately after the interest has been added to the account each quarter, Dina withdraws a payment of $3800. Re 43s = 083 A recurrence relation that can be used to determine the value of Dinas investment after n quarters, Dy, is Dyst = 0.948D, ~ 3800 Dyyi = 0.987D,, ~ 3800 Dasa = 1.0052D, ~ 3800 Dyst = 1.013D, ~ 3800 E Dp = 225000, Dysi = 1.052D, — 3800 Bi Aina trveted scene any inv peeponty teen vise ns mnsiver upset piet $675.10 each quarter. _ a ‘The perpetuity pays interest of 4.3% per annum, compounding quarterly. How much money did Alicia invest in the perpetuity? A $6280 B $1570 © Si8840 (D)s62800 _E S188 400 f3\ Geoff has a current balance of $317 922.75 in his superannuation account wh Geoff's employer deposit8'$420 into this account every. fortnight. =e This account earns interest at the rate of 3.1% per annum, compounding fortnightly. ‘The account wll ist exceed $720.00 after Pxlrb X= 396.4) A 26 years . B 235 fortnights (©. 236 fortnights D394 fortnight ()395 formighs aN 978-1-009-11041-9 @ Peter Jones etal 2023 Cambridge University Press olocopying is resvcted under law and this material must not ba transferred to another pay.98 Exam 2style questions 469 . prot =1080 Bs Lucy borrows $180 000 in an interest-only loan, Prin=/$0 oP . Interest is calculated and paid monthly. held 7 If Lucy pays $1080 per month, then the annual interest rate is A 0.06% B 06% © 0.12% D 6% (©)72% Le) so borrowed $32 000 to buy a car and was charged interest at the rate of 10.4% per annum, compounding monthly. Pix=32°7? (104 ni2 t=] pym?=380 FU gs 3070]! For the first year of the loan, Maya made monthly repayments of $380-in=fVia_ pys=5(0 For the second year ofthe loan, Maya made monthly repayments of $510..4=27637.53 ‘The total amount of interest that Maya paid over this two-year period was closest to A $3050 B $3268 © $4362 (o)scis E $10680 O Tord port 380xn+ OX = 0680 . O-© =63/7. 53 = |nterest Oraapl don 2 32000 ~2Tb37. 5% = 4352-47 & Exam 2 style questions ‘4 \ Abigail invests some money into a savings account that earns interest compounding ater! ‘The interest is calculated and paid at the end of each quarter. Let A, be the balance of Abigail’s savings account, in dollars, after n quarters. ‘The recursive calculations below show the balance of Abigail’s savings account for the first two quarters, ‘Ag = 8500 Ay = 1.013 x 8500 = 8610.50 1.013 x 8610.50 = 8722.44 ‘a How much money did Abigail initially invest? @57 b How much interest in total did Abigail earn by the end of the second quarter? 222. #4 © Write down a recurrence relation, in terms of Ao, Ans1 and Ap that can be used to model the balance, in dollars, of Abigail’s savings account after n quarters 4 What is the annual interest rate? fy =507 , Ans =/.01An © Abigail plans to use her savings to buy a car that will cost $10 000. At the end of which quarter will Abigail first have enough money to buy the car? > a Ge d. ys cord = ae eran se 0 n= 12.53 18 Quarters ISBN 978-1-009-11041-9 (@ Peter Jones otal 2023 Cambridge University Pro Photocopying is restricted under law and this material must not be transferred to another pay.470 Chapter 9 » Revision: Recursion and financial modelling Z2\ Tina spent $25 000 on a new coffee machine for her cafe. ‘The value of the coffee machine will depreciate by $0.50 per hour of use. ‘The recurrence relation below can be used to model the value of the coffee machine, Va, after n years. Vo = 25000, Vas = Vn 936 y,- rom00-93b= 240he VeVi-Oh= 23/28 a Use recursion to(ghiaié that the value of the coffee machine after three years is /y:V.~936= 2BIP2" $22 192. bb Tina uses the coffee machine all 52 weeks of the year for the same number of hours each week. 936 20.5 +52 =i hs For how many hours each week is the coffee machine used? '3\ Yash has a reducing balance loan where he makes monthly payments Five lines of the amortisation table for Yash’s loan are shown below. Payment number Payment Interest Principal reduction _ Balance 0 0 0.00 0.00 260000.00 | 1 2150.00 1170.00 980.00 25902000 2 2150.00 1165.59 98441 258035.59 3 215000 1161.16 988.84 257046.75, 4 2150.00 A B c & What amount did Yash originally borrow? aben008 Interest is calculated monthly and Yash makes monthly payments. x10 = nT HV Taz Oh GRD © Write down the values of A, p:}9- 103-1] aa = 257046778 = aA 2570467504 P00 Millie takes out a reducing balance loan of $240 000. The interest rate for the loan is 3.6% per annum, compounding fortnightly. Millie pays $1350 per fortnight and decides to do so for all payments except the final payment which will be lower. FV Pri=240 0p r=3,6 n=2b pynts290 FV=0. t= 7/2 a How many of Millie's payments will be exactly $1350? X=204.22 “JBMBpayinent of $/350 b After seven years of repayments, Millie decides to pay the remaining balance of her tom. 427 FV, =2agube73 How much will Millie need to pay? ‘© In which of the years will Millie pay the most interest? The @fWISHDYB>y with tie mest crmseent of the lean bb Show that the interest rate for this loan is 5.4% per annum. 24> gop A IBN 978-1-009-11041.9 © Peter Jones et al 2023, Cambridge University Press tocopying is restricted under law and this material must not be transferred to another party9B Exam 2 style questions. 471. A Hugh bought a motorscooter to deliver food for a local restaurant. He paid $4450 for the scooter. ‘The value of Hugh’s scooter depreciated by a fixed amount for each evening shift that he completed. After 20 evening shifts, the value of the scooter decreased by $50. a What was the value of Hugh’s scooter after 20 evening shifts? 400? b Write a calculation that shows that the value of Hlugh’s scooter depreciated by $2.50 per evening shift. BB 42.5 | shift, © The value of Hugh's scooter after n evening shifts can be determined using a rue Complete the rule below by writing the appropriate numbers in the boxes provided. H, ATID NaSOy x n Using the rule, find the value of Hugh’s scooter after 200 evening shifts.4450 —2.5) € The value of the scooter continues to depreciate by $2.50 per evening delivery shift. Aer ow mays a pt of Hpac inl $0007, 6 A government grant of $65.000 was invested in an annuity to provide a monthly payment toa local artist. . Prin =}5000 fis 3.94 nzi2 f-a)i2 PY, =43592. ‘The annuity pays interest at the rate of 3.54% per annum, compounding monthly. After four months the annuity had a balance of $43592.50 remaining, a What is the value, in dollars, of the monthly payment to the artist? pymt= S320» b After four months, the artist realises that she will not complete the artwork within the originally set twelve months. ‘To extend the time that the annuity will last, the artist will receive a reduced payment of $2000 per month. er FV=0 r=3.5¢ h=l2 Pin=43592.50 The annuity will end with one final monthly payment that will be smaller than $2000. = 22.5618 Calculate the number of months that the artist will receive $2000 per month. Cy aaah J regular payment ISBN 978-1-009-1 1041-8 (© Peter Jones otal 2023 Cambridge University Pre Photocopying is restricted under law and this material must not be transferred to anothor party.