Topic 4: Financial Models

3 dot points across 3 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How does money grow when interest compounds, and how do regular savings build an investment?

Apply the compound interest formula and model annuities with regular contributions to find future values of investments.

How to use the compound interest formula with different compounding periods, find the future value of an investment, and model an annuity that grows through regular contributions.

8 min answer →

How do we model the loss in value of an asset over time?

Model depreciation using flat-rate, reducing-balance and unit-cost methods, and find the value of an asset over time.

How to model an asset losing value by flat-rate (straight-line), reducing-balance and unit-cost depreciation, find its value after a number of years, and choose the right method.

8 min answer →

How does a loan balance fall as we make regular repayments against compounding interest?

Model a reducing-balance loan with a recurrence relation, track the balance after each repayment, and analyse the effect of changing the repayment.

How to model a reducing-balance loan with a recurrence, build an amortisation schedule splitting each payment into interest and principal, and see how repayment size changes the loan term.

8 min answer →