investments
Investments One of the most common ways to do calculations with money when the amount increases, is to calculate how much the money will be worth after a while. An investment is when you pay your money into an account, for instance with a Bank, and conclude an agreement with them that, as long as you do not withdraw the money, they will grow it at a certain percentage. So, if the Bank says that they will offer you 5% interest, it means that they will let your money grow by 5% each year. If you have paid in R1 000, after one year it will be 5 1000 R50 R1000 R1 050 . 100 1 If you leave your money for longer than a year, you will get even more interest, but there are two ways in which the Bank can calculate the interest: 1) They can tell you beforehand for how long you must leave the money there, and then do a calculation accordingly (we refer to this as “Simple Interest”), or 2)
They can simply calculate the interest each year based on what amount is in the account at the time (then it is known as “Compound Interest”). Compound interest can get rather technical, and there are special formulas for it, but we’ll leave that for a more comprehensive section of Financial Mathematics. Financial Mathematics
Let’s just quickly take a glance at Simple Interest. As we’ve seen when you receive 5% interest for one year, and invest R1 000, you will have R1 050 at the end of the year. If, however, you decide to leave the money for three years, it will be as easy as multiplying the amount you get (R50) with three, and after three years you will have R1000 + R150 = R1 150! If, however, you borrow money from the Bank, they sort of consider it as an investment by them in you, and now you have to pay them back this interest. This is what we mean when we talk of a loan. If you have borrowed R1 000 from the Bank, and you need to pay it back over three years, you will have to pay them back R1 150. If you want to know how much this will be each month, divide this by 36 months (3 years): R31,94.
Financial Mathematics
They can simply calculate the interest each year based on what amount is in the account at the time (then it is known as “Compound Interest”). Compound interest can get rather technical, and there are special formulas for it, but we’ll leave that for a more comprehensive section of Financial Mathematics. Financial Mathematics
Let’s just quickly take a glance at Simple Interest. As we’ve seen when you receive 5% interest for one year, and invest R1 000, you will have R1 050 at the end of the year. If, however, you decide to leave the money for three years, it will be as easy as multiplying the amount you get (R50) with three, and after three years you will have R1000 + R150 = R1 150! If, however, you borrow money from the Bank, they sort of consider it as an investment by them in you, and now you have to pay them back this interest. This is what we mean when we talk of a loan. If you have borrowed R1 000 from the Bank, and you need to pay it back over three years, you will have to pay them back R1 150. If you want to know how much this will be each month, divide this by 36 months (3 years): R31,94.
Financial Mathematics
