Number Sense, Estimation, and Financial Computations

Consumer Credit

Question One

In case one, the total value (P) of the appliances, will be equal to $7,300.

Question Two

The annual interest rate (r) to be charged by the store for two years will be equal to 24% or 0.24.

Question Three

If the store attaches charges for the bills, the simple interest to be paid will be equal to:

I = P x R x T

= 7,300*0.24*2

= $ 3,504

Question Four

The total bill—the total value of the appliances plus the interest

Total Bill = Simple Interest + Total Value

= $11,224.5 + 3,504

= $14,728.5

Question Five

If the interest rate is compounded daily, the compound frequency will be 365 per year while the interest changes to 0.24 divided by 365.

Interest rate (r) per day = 0.24/365 = 0.000657534

Time (t) = 365*2= 730 days

Compounded Interest = 7300 (1.000657534) 730 

= 11795.48026 

The total bill—the total value of the appliances plus the interest

Total Bill = Compounded Interest + Total Value

= 11795.48026+7300 

= $ 19,095.48 

Question Six 

Interest rate (r) per day = 0.24/365 = 0.000657534

Time (t) = 365*2= 730 days

Compound Interest = 7300 (1.000657534) 730 

= 11795.48 

Question Seven 

Simple interest is the interest paid on the original principal while the compounded interest is the interest paid on the principal and the interests earned previously. 

Question Eight  

Deferred billing is an advantage to shoppers to some extent. In this case, the shoppers are allowed to hold the cash for the goods purchased and thus it is a cash inflow. The shoppers can invest or purchase other items using the cash to be paid in future before the maturing of the billing period. 

Saving for Retirement 

Question One 

Example of retirement expenses 

-Expenses covered such as health insurance premiums 

-Traveling expenses in cases where employee was using employer's vehicle 

-Taxes on retirement benefits except on social security 

Question Two 

Retirement future value = $ 700,000 

Question Three 

Retirement account contribution period = 30 years 

Question Four 

Interest rate (r) = 9.0% or 009 

Question Five 

The retirement contribution will be compounded semi-annually (n=2). 

Question Six 

The interest rate per compounding period = 9.0/2 = 4.5% 

Question Seven  

Contribution per period 

C = (700,000*0.045)/ [(1.045) 60 -1)] 

C= 2417.98 

Question Eight 

Total contribution 

TC = C x n x t

= 2417.98*2*30 

=145,078.8 

Question Nine  

Retirement benefit is the difference between the TC and F is the interests which have been compounded semi-annually. 

Question Ten 

The retirement benefit will be equal to 700,000-145078.8 = 554,921.2. The retirement contribution is important because as you come to retire there will be a reduction in income and it covers some of this loss in income.