Simple Interest

WebAssign Software Usage

  • Reminder: WebAssign is an American software, and numerical format affects input.
    • If a comma is used for financial math, it may mark the answer as incorrect.

Rounding Principles

  • Rounding to Nearest Whole Number:
    • Example of a number: (0.666 ) rounds up to 1.
    • Example of (0.65 ) rounds up to 1.
    • Example of (0.644 ) rounds down to 0.

Payment Calculations in Debt Scenarios

  • Debt Scenario Example:

    • Amount owed: R5,000.
    • Payment amount: R300.
    • Payment schedule: 300, 300, 300 until the debt is paid.
    • Final payment likely to be less than R300 due to underpayment.

  • Question Variations:

    • "How many R300 payments were made?"
    • "How many payments in total?"

  • Rounding Up Concept:

    • If total payments are calculated as 10.3, round up for the number of R300 payments.
    • Total payments must be a whole number.

Time Value of Money

  • Important Concept Explanation:
    • Example: R416.67 today is equivalent to R500 in two years at an interest rate of 10%.
    • Sensitivity in different interest rates changes the future value equivalent.
    • R500 in two years is not better than R416 today; they represent a breakeven point financially.

Financial Considerations

  • Investment vs Loan: Importance of timing and interest rates.
    • Inflation: Effects of inflation reduce purchasing power of money over time.
    • Real Interest Rate:
    • Defined as the nominal interest rate adjusted for inflation.
    • Example:
    • If inflation is 7% and the investment return is 10%, the net interest return is 3%.
    • Calculation of interest during examples will generally assume inflation is considered.

Timelines in Financial Mathematics

  • Practical Application:

    • When given an amount today and asked how much it is worth in the future, move forward in time.
    • When given a future amount, and asked its value today, move backward in time.

  • Distinction Importance:

    • Understanding whether to assess the present value (PV) or future value (FV) of amounts is crucial.
    • Assessing the question's phrasing for context is important for accuracy.

  • Timelines Key Usage:

    • Attach amounts to timelines; this helps in visualizing and solving problems.

Example Timeline Scenarios

  • Given Problem: Borrow R1,000 for home loan. Attach R1,000 to the timeline directly.
    • Future Value Calculation requires knowing how long until due.

Promissory Notes Explained

  • Definition:
    • A signed note assuring repayment of a specific amount at a future date.
    • Example: Signing a note for borrowed R200 at a future repayment of R220.
    • Maturity Value: R12,000 depicted on the timeline.

Interest Application

  • Scenario

    • An example involves determining the worth of R12,000 three months prior given a 12% interest rate.
    • Must compute present value by converting months to years in calculations.

  • Calculation Example:

    • End result: R11,650.49 equates to R12,000 after three months with 12% interest.

High-Interest Situations

  • Example with friend loaning R200 today and expecting R220 repayment next month.

    • IR Calculation reveals effective interest is very high when translated to percentage terms.

  • Important Note:

    • Implicit interest exists even in informal agreements. Calculations must align in terms of time to yield accurate rate of return.

Preparing for Assessments

  • Note that exams will not feature overly simplistic questions. Focus will shift to more complex financial math concepts.

  • Importance of grasping timelines, understanding phrases in problem statements, and ensuring clarity on when amounts on a timeline should be assessed.

WebAssign Guidance

  • Reminder to sign up on WebAssign.

    • Initial login best performed on a regular computer.
    • Continued frustrations acknowledged; communicate issues via email with timetable available for coordination of slots.
    • No tutorials this week, ensuring there is no emergency regarding sign-ups for the time being.

  • Conclusion: Regular reminders to remain engaged and proactive in assignments, and keep momentum for the learning process.