IB DP Maths 3 hours 25 questions
Exam Questions
Financial Applications
Compound Interest & Depreciation / Amortisation & Annuities
Medium (8 questions) /58 Scan here to return to the course
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Hard (10 questions) /74
Very Hard (7 questions) /56
Total Marks /188
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Medium Questions
1 (a) In this question, give all answers to two decimal places. At the start of 2021 Maro
wants to open a savings account. Bank A offers him an account with 3.5% annual simple
interest with an initial deposit of $5000, and Bank B offers him an account with 2.5%
nominal annual interest with an initial deposit of $4000, compounding annually. The
interest for both accounts is paid in monthly deposits.
Calculate the amount of money Maro would have saved by the start of 2030 if he opens
the Bank A account.
(2 marks)
(b) Calculate the amount of money Maro would have saved by the start of 2035 if he opens
the Bank B account.
(2 marks)
(c) Find the year in which the amount in the Bank B account would surpass the amount in
the Bank A account.
(3 marks)
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2 (a) Daniel and Jonah have each been given $5000 to save for university.
Daniel invests his money in an account that pays a nominal annual interest rate of 2.24%,
compounded quarterly.
Calculate the amount Daniel will have in his account after 8 years. Give your answer to 2
decimal places.
(3 marks)
(b) Jonah wants to invest his money in an account such that his investment will double in 10
years. Assume the account pays a nominal annual interest of r % , compounded half-
yearly.
Determine the value of r .
(3 marks)
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3 (a) Alice buys a new coffee machine for $4499. The value of the coffee machine depreciates
by 9% each year.
Find the value of the coffee machine after 5 years. Give your answer correct to 2 decimal
places.
(2 marks)
(b) Find the number of years and months it will take for the value of the coffee machine to
be approximately $999.
(3 marks)
(c) The shop offers Alice a finance option in the form of a 1 year loan. Terms of the loan are:
a 17.2% nominal annual interest rate, compounded monthly
repayments to be made each month
Find the cost of each monthly repayment. Give your answer correct to 2 decimal places.
(2 marks)
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4 (a) A new car costs $20 000 and its value depreciates to $14 792 after 2 years.
Calculate
(i) the annual rate of depreciation of the car
(ii) the value of the car after 5 years. Give your answer correct to 2 decimal places.
(3 marks)
(b) Find the number of years and months it will take for the car’s value to be approximately
$4000.
(3 marks)
(c) Gus purchases the new car from a dealership who offers him a finance option in the
form of a 3 year loan. Terms of the loan are:
a 9% nominal annual interest rate, compounded monthly
repayments to be made each month
Find the monthly repayment that would have to be made. Give your answer correct to 2
decimal places.
(2 marks)
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5 (a) In this question, give all answers to two decimal places.
Biddy decides to purchase a new van from a dealership which costs $18 000, however
she cannot afford the full amount.
The dealership offers her a finance option in the form of a 4 year loan. Terms of the loan
are:
a 12% nominal annual interest rate, compounded quarterly
a 15% deposit
repayments to be made each quarter
Calculate the loan amount Biddy would receive.
(2 marks)
(b) (i) Find the repayment that would have to be made each quarter.
(ii) Find the total amount paid for the van.
(5 marks)
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6 (a) In this question, give all answers to two decimal places.
On his 40th birthday, Robert invests $15 000 into a savings account that pays a nominal
annual interest rate of 4.78%, compounded monthly.
(i) Write an expression for the total value of the investment after n years.
(ii) Find the total amount in the savings account after 3 and 5 years.
(3 marks)
(b) Find the age Robert will be when the amount of money in his account is 1.5 times the
initial amount.
(2 marks)
(c) Robert would earn the same amount of interest, compounded quarterly, for 5 years if
he deposits his money in a second savings account.
Calculate the nominal annual interest rate from the second savings account.
(3 marks)
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7 (a) Fraser decides to invest in a retirement plan for 25 years. In this plan, he will deposit
$500 at the end of every month, on which he will receive 5.5% nominal annual interest,
compounded monthly.
Find the value of the investment at the end of the 25 years. Give your answer correct to 2
decimal places.
(3 marks)
(b) After the 25 year period, Fraser will start receiving regular monthly payments of $1250.
Find the number of years it will take for Fraser’s monthly retirement payments to match
the total value of the investment at the end of the 25 years.
(2 marks)
(c) Find the number of years it will take for Fraser’s monthly retirement payments to match
the total amount he invested.
(3 marks)
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8 (a) In this question, give all answers to two decimal places.
Lily takes a mortgage of $220 000 to purchase a house at a nominal annual interest rate
of 4.18%, compounded monthly. She agrees to pay the bank $1600 at the end of every
month to amortise the loan.
Find
(i) the number of years and months it will take Lily to pay back the loan
(ii) the total amount Lily will pay to purchase the house.
(4 marks)
(b) Lily wants to pay off the loan within 10 years.
Calculate the new monthly payment required to do this and justify this decision.
(3 marks)
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