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Financial maths edco exam papers pg 45

  • 14-03-2013 4:04pm
    #1
    Leaving Cert Student
    Registered Users, Registered Users 2 Posts: 1,026 ✭✭✭


    We did financial maths last year and it wasn't bad I thought but looking at the exam style questions now I cant make head or tail of it. can anyone talk me through what is happening in q5 (a) sample paper a? it said the value of first installment was A yet marking scheme said 1st was A/1.06 or something? It must be the terminology but I can't visualize what is happening to the money here at all! any help massively appreciated...k


Comments

  • #2
    Chris68
    Registered Users, Registered Users 2 Posts: 144 ✭✭Chris68


    I haven't looked at the question you've asked about but I imagine its something like this...

    The first installment is €A but you don't get this money until the end of the year.

    Meanwhile the bank is offering 6% interest for the year. If you took the bank up on their offer and put €(A/1.06) into the bank today, then the bank would give you back €(A/1.06)x(1.06)=€A at the end of the year.

    So €(A/1.06) today has the same value as €A next year; i.e. the installment might be for €A but its not worth that much today. Today it is only worth €(A/1.06).

    Similarly the second installment might also be for an amount of €A but it isn't due for 2 years. Today it would only be worth €(A/1.06^2).

    And so on...


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