1.  G K Powers 2013 Cambridge University Press 6. Investing money Study guide 1

2.  G K Powers 2013 Cambridge University Press Simple interest Simple interest is a fixed percentage of the amount invested or borrowed. It is calculated on the original amount. I – Interest (simple or flat) earned for the use of money. P – Principal is the initial amount of money borrowed. r – Rate of simple interest per period expressed as a decimal. n – Number of time periods. A – Amount or final balance. HSC Hint – List the data from the question using the correct variables such as P = $10 000, r = 7%, n = 3. 2

3.  G K Powers 2013 Cambridge University Press Simple interest graphs  Simple interest graphs are straight-line graphs.  To construct a simple interest graph: 1. Construct a table of values for I and n using the formula. 2. Draw a number plane with n as the horizontal axis and I as the vertical axis. 3. Plot the points and join them to make a straight line. HSC Hint – An increase in simple interest each time period represents the gradient of the line. 3

4.  G K Powers 2013 Cambridge University Press Compound interest Compound interest is interest calculated from the initial amount borrowed or principal plus any interest that has been earned. It calculates the interest on the interest. A – Amount (final balance) or future value of the loan. P – Principal is the initial quantity of money. r – Rate of interest per compounding time period (decimal) n – Number of compounding time periods. A – Amount or final balance, I – Interest earned. PV – Present Value, FV – Future Value HSC Hint – Match the time periods for r and n: annually, biannually, quarterly or monthly. 4

5.  G K Powers 2013 Cambridge University Press Compound interest graphs  Compound interest graphs are curves.  To construct a compound interest graph: 1. Construct a table of values for A and n using the compound interest formula. 2. Draw a number plane with n the horizontal axis and A the vertical axis. Plot the points. 3. Join the points to make an exponential curve. HSC Hint – The vertical intercept for a compound interest graph is the principal (n = 0). 5

6.  G K Powers 2013 Cambridge University Press Using prepared tables  Investment problems are made easier by using tables.  To use a prepared table: 1. Determine the time period and rate of interest. 2. Find the intersection of the time period and rate of interest in the table. 3. Multiply the number in step 2 with the money invested. HSC Hint – Match the time periods for r and n: annually, biannually, quarterly or monthly. 6

7.  G K Powers 2013 Cambridge University Press Financial institutions  Charges – account servicing charge per month plus transaction fees for using ATM, telephone, internet or branch.  Penalties – overdrawn account fee, cheque dishonour fee, late payment fee, periodic payment dishonour. HSC Hint – Read the question carefully to ensure all penalty fees have been calculated. 7

8.  G K Powers 2013 Cambridge University Press Appreciation and inflation  Appreciation is an increase in value of an item over time such as art, gold or land. It is often expressed as the rate of appreciation.  Inflation is a rise in the price of goods and services or Consumer Price Index (CPI). It is often expressed as annual percentage. Inflation rate is the annual percentage change in the CPI.  Use the formula for appreciation and inflation. HSC Hint – Calculations for appreciation and inflation are similar to calculating compound interest. 8

9.  G K Powers 2013 Cambridge University Press Shares and dividends  A share is a part ownership in a company. Shares are bought and sold using a broker.  Dividend is a payment given as an amount per share or a percentage of the issued price.  Dividend yield is the annual dividend divided by the share’s market price and expressed as a percentage. HSC Hint – Amount paid for a share is called the cost price and the current price is called the market price. 9