§-Quick questions
NSWMaths Standard 2Year 12: Financial Mathematics
Quick questions on Compound interest and investments for HSC Maths Standard 2
5short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is per-period rate?Show answer
Rates are usually quoted as a nominal annual rate, but interest may compound more often than annually. Convert before applying the formula.
What is present value?Show answer
The present value is the amount you must invest today to grow to in periods. Rearranging:
What is effect of compounding frequency?Show answer
For a fixed nominal rate, more frequent compounding gives a slightly higher effective rate. A nominal compounded:
What is effective annual rate?Show answer
The effective annual rate is the single annual rate that, compounded once a year, gives the same growth as the nominal rate compounded times a year:
What are comparing investments?Show answer
When choosing between two investments at different rates and compounding frequencies, either compute the future value at the same horizon and compare the dollar figures, or compute the effective annual rates and compare those. Both give the same ranking; pick whichever the question makes easier.
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