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Home › 0580 (2016) › Cambridge International Examinations › Interest › money

THE FARMER INVESTED MONEY WITH COMPOUND INTEREST (CAMBRIDGE PAST PAPER)

Three years ago the farmer invested $3750 at a rate of 4% per year compound interest.

(i) Calculate the total value of his investment after the 3 years.
(ii) The farmer wants to spend his investment on buying goats.
Goats cost $126 each.
Work out the maximum number of goats he can buy and how much money is left over.

Mathematics Cambridge IGCSE Test (0580 m16 qp 32)

Answer:

i) The formula of Compound Interest is

A=P (1+R/100)^T

This formula is applied when for each year we calculate the interest from previous year, until T years. So we calculate the interest compoundly.

The Amount A is the total of money with its interest, after T years.

In this question:

P = $3750
After first year = $3750 + 4% x $3750 = $3900
After second year = $3900 + 4% x $3900 = $4056
After third year = $4056 + 4% x $4056 = $4218.24
Or simply use the formula

A=$3750(1+4/100)^3

A=$4218.24

(ii) Number of goats will be calculated as

=$4218.24/126
=33.49

Exact the maximum number of goats he can buy are 33 goats.

The remaining money after he bought goats is 60.24

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