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Exam-Style Question on Finance

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Question id: 444. This question is similar to one that appeared on an IB AI Standard paper (specimen) for 2021. The use of a calculator is allowed.

Mr and Mrs Moule are considering purchasing a new car with a price of £12000

Mr and Mrs Moule's Car

The dealership offers two options to finance a loan.

Finance Plan A:

A five year loan at a nominal annual interest rate of 12 % compounded quarterly. No deposit is required and repayments are made each quarter.

(a) Find the repayment made each quarter.

(b) Find the total amount that will have been paid for the car by the end of the five years.

(c) Find the total amount interest that will have been paid on the loan by the end of the five years.

Finance Plan B:

A five year loan at a nominal annual interest rate of \(r\)% compounded monthly. An Initial 12% deposit is required and monthly repayments of £255.

(d) Find the annual interest rate, \(r\).

(e) State which option Mr and Mrs Moule should choose and justify your answer.

This new car will depreciates at an annual rate of 20% per year.

(f) Find the value of Mr and Mrs Moule’s car when it is ten years old.

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If you need more practice try the self-checking interactive exercises called Annuity and Amortisation.

The exam-style questions appearing on this site are based on those set in previous examinations (or sample assessment papers for future examinations) by the major examination boards. The wording, diagrams and figures used in these questions have been changed from the originals so that students can have fresh, relevant problem solving practice even if they have previously worked through the related exam paper.

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