Apps. and Interpretation for IBDP Maths Ebook 1 | Page 89

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Paper 1 – Rate of Inflation
Example
$170000 is invested for 8 years at a nominal annual interest rate of r % , compounded
yearly. The amount of money after 8 years is $260000.
(a) Find the value of r .
It is given that the rate of inflation during these 8 years is 2% per year.
[3]
(b)
(c)
Write down the value of the real interest rate.
Hence, find the real value of amount of money after 8 years.
[1]
[2]
Solution
(a)
� r �
260000 �170000 �1�
�
� 100 �
� r �
170000 �1� � �260000 �0
� 100 �
By considering the graph of
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www.seprodstore.com
(M1)(A1) for correct equation
� r �
y �170000 �1� �
� 100 �
�260000
,
r � 5.454606 .
Thus, r � 5.45 . A1 N3
By TVM Solver :
N�
8
I% � ?
PV ��170000
PMT � 0
(M1)(A1) for correct values
FV � 260000
P / Y �1
C / Y �1
PMT : END
Thus, r � 5.45 . A1 N3
[3]
(b) 3.45% A1 N1
[1]
(c) The real value of amount of money
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