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Seminar 4 with answers

The document covers various quantitative methods related to percentages and interest rates, including converting fractions to percentages, calculating percentage of quantities, and determining percentage increases or decreases. It also discusses simple and compound interest calculations, perpetuity, nominal vs real interest rates, and effective annual interest rates. Additionally, it provides real-life examples and problems to illustrate these concepts.

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2 views

Seminar 4 with answers

The document covers various quantitative methods related to percentages and interest rates, including converting fractions to percentages, calculating percentage of quantities, and determining percentage increases or decreases. It also discusses simple and compound interest calculations, perpetuity, nominal vs real interest rates, and effective annual interest rates. Additionally, it provides real-life examples and problems to illustrate these concepts.

Uploaded by

indirakhadjieva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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WIUT Quantitative Methods 3BUSS001C

Academic Year 2023-2024

Seminar 4 Percentages and Interest rates


1. Convert each of the following fractions to percentage:
a. 3/25 = (3/25 × 100) % = 12 %
b. 4/5 = (4/5 × 100) % = 80 %
c. 3/4 = (3/4 × 100) % = 75 %
d. 2/3 = (2/3 × 100) % = (200/3) × 100 % = 66.67 %
e. 1 = (1 × 100) % = 100 %

2. Calculate a percentage of a given quantity.


a. Find 40 % of 240
40/100 × 240 = 96
b. Find 10 % of 1 hour
10 % of 60 minutes (Since, 1 hour = 60 minutes)
= 10/100 × 60 minutes = 6 minutes
c. Find 15 % of $250.
15/100 × 250 = $75/2 = $37.5
d. Find 120 % of 25 km
120 % of 25 km = (120/100 × 25) km = 30 km

3. Increase or decrease a quantity by a given percentage.


a. The price of rice is increased from $10 to $12.50 per kg. Find the percentage increase in price.
Price of rice before = $10
Price of rice now = $12.50
Increase in price = current price – original price = $12.50 - $10 = $2.50
Therefore, percentage increase in price = Increase in price/Original price × 100 %
= 2.50/10 × 100 % = 250/10 % = 25 %
Thus, increase in price= 25 %
b. The population in a small town increases from 20,000 to 21,250 in one year. Find the percentage increase
in population.
Population in a small-town last year = 20000
Population in a small town after one year = 21250
Increase in population = 21250 - 20000 = 1250
Therefore, percentage increase in population = Increase in population/Last year population×100 %
= 1250/20000 × 100 % = 125000/20000 % = 25/4 % = 6.25%
Thus, the increase in population is 6.25%
c. The cost of an article is decreased by 15%. If the original cost is $80, find the decrease cost.
Original cost = $80
Decrease in it = 15% of $80 = 15/100 × 80 = 1200/100 = $12
Therefore, decrease cost = $80 - $12 = $68
d. A television manufacturing company declares that a television is now available for $5600 as against $8400
one year before. Find the percentage reduction in the price of television offered by the company.
Price of the television a year before = $8400
Price of the television after a year = $5600
Decrease in price = $(8400 - 5600) = $2800
Therefore, decrease % = 2800/8400 × 100 % = 100/3 = 33 1/3%

4. Real-life problem.
In an election, candidate A got 75% of the total valid votes. If 15% of the total votes were declared invalid
and the total numbers of votes is 560000, find the number of valid votes polled in favor of candidate.
Total number of invalid votes = 15 % of 560000 = 15/100 × 560000 = 8400000/100 = 84000
WIUT Quantitative Methods 3BUSS001C
Academic Year 2023-2024
Total number of valid votes 560000 – 84000 = 476000
Percentage of votes polled in favor of candidate A = 75 %
Therefore, the number of valid votes polled in favor of candidate A = 75 % of 476000
= 75/100 × 476000 = 35700000/100 = 357000

5. Interest rates (simple vs compound)


a. $250 is invested at a bank that pays 7% simple interest. Calculate the amount of money in the account
after 1 year, 3 years, 7 years, and 20 years.
Step 1: Write down the formula
I = p*(1+r*t)
Step 2: Plug in the values
I = 250 × (1+0.07*1) =$267.5
I = 250 × (1+0.07*3)=$302.5
I = 250 × (1+0.07*7)=$372.5
I = 250 × (1+0.07*20) × 20=$600
b. John wants to have an interest income of $3,000 a year. How much must he invest for one year at 8%?
Step 1: Write down the formula
I = prt
Step 2: Plug in the values
3000 = p × 0.08 × 1
3000 = 0.08p
p = 37,500
Answer: He must invest $37,500
c. Jane owes the bank some money at 4% per year. After half a year, she paid $45 as interest. How much
money does she owe the bank?
Step 1: Write down the formula
I = prt
Step 2: Plug in the values

45 = 0.02p
p = 2250
Answer: She owes $2,250
d. 1mln soums is invested at a bank that pays 20% compound interest, compounded annually. Calculate the
amount of money in the account after 4 years, (Homework: 7 years, and 20 years).
Step 1: Write down the formula
A = p(1+r)t
Step 2: Plug in the values
A = 1,000,000*(1+0.20)4 = 2,073,600 soums
e.1mln soums is invested at a bank that pays 20% compound interest, compounded semi-annually. Calculate
the amount of money in the account after 4 years, (Homework: 7 years, and 20 years).
Step 1: Write down the formula
A = p(1+r/2)t*2
Step 2: Plug in the values
A = 1,000,000*(1+0.2/2)4*2 = 1,000,000*(1+0.1)8 = 2,143,588.81 soums

6. Perpetuity
a. Your broker has offered you an investment vehicle which will pay you (or your descendants) $36,000 per
year forever with the first payment coming one year from today. If the interest rate is 4%, how much is
the investment vehicle worth to you today?
Amount to be received next year (A) = $36,000
WIUT Quantitative Methods 3BUSS001C
Academic Year 2023-2024
Annual interest rate (r) = 4%
A 36,000
Investment worth today= = =$ 900,000
r 0.04
So, the investment is worth $900,000 today.

b. Currently you have $200,000 to invest in a project that pays perpetually 12% of your investment. How
much money will it pay every year?
Annual interest rate (r) = 12%
Investment today=$200,000
Amount to be received every year = $200,000*0.12=$24,000

c. A local bank will pay you $500 a year for your lifetime if you deposit $10,000 in the bank today. If you
plan to live forever, what interest rate is the bank paying?
Amount to be received next year (A) = $500
Investment amount (P) = $10,000
A $ 500 $ 500
P= $ 10,000= r= =0.05=5 %
r r $ 10,000
Bank is paying 5% annually.

d. Using the rule of 72, if the interest rate is 12%, how l;ong will it take for you to double your money?
72
According to the Rule of 72: =6years
12%

7. Nominal vs Real interest rate

Your local bank is offering 15% annual interest rate on deposit. The inflation rate is 5.5%. Calculate the exact
real interest rate using the formula.
1+nominal interest rate
1+real interest rate=
1+inflation rate

1+nominal interest rate 1+0.15 1.15


real interest rate= −1= −1= −1=0.09=9 %
1+inflation rate 1+0.055 1.055

8. Effective annual interest rate and Annual Percentage Rate (APR)

a. If an eight-year interest-bearing account yields a 20 percent nominal annual rate of


return that is compounded semi-annually, what is the account's effective annual rate
of return?
Solution:
2 2
r 0.20 2
Effective Annual Rate = (1+ ) −1=(1+ ) −1=1.1 −1=21 %
2 2

b. First National Bank pays 6.2% interest compounded semiannually. Second National
Bank pays pays 6% interest, compounded monthly. Which bank offers the higher
effective annual rate?
WIUT Quantitative Methods 3BUSS001C
Academic Year 2023-2024
2 2
0.062
Effective Annual Rate of 1st National Bank= (1+) −1=(1.031) −1=0.06296=6.3 %
2
12 12
Effective Annual Rate of 2nd National Bank= (1+
0.06
) −1=(1.005) −1=0.06168=6.17 %
12
First National Bank offers the higher effective annual rate.

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