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Introductory Financial Mathematics Department of Decision Sciences Assignment 01 for Semester 01 2022
Unique assignment number: Due Date: 1 March 2022
Patric borrows money from Zanele at a simple discount rate of 9,75% per annum. He must pay him R35 000 in 27 months’ time....
Unique assignment number: 189377
Due Date: 1 March 2022
Question 1
Patric borrows money from Zanele at a simple discount rate of 9,75% per annum. He must
pay him R35 000 in 27 months’ time. The amount of money that he receives from Zanele
now is
is the principal or total amount borrowed (in rand) which is subject to interest ( is also
known as the present value [] of the loan)
is the rate of interest, that is, the fraction of the principal that must be paid each period
(say, a year) for the use of the principal (also called the period interest rate)
is the time in years, for which the principal is borrowed.
This is a simple discount calculation as the term discount rate is found in the question. The
formula for simple discount is = 𝑆(1 − 𝑑).
Given are the future value of the loan (𝑆) which is R35 000, the time period which equals 27
months and the discount rate (𝑑 ) of 9,75%. The time period that we use must always be in
years.
As the given time is in months we change it to a fraction of a year by dividing the months by
27
the number of months in a year which is 12. Thus =
12
Now we need to determine the present value of the loan. Thus
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