Worked examples: WACE Mathematics Applications Formula Sheet

Selected worked examples

1. Finance · compound interest

   Formula or reference: A = P(1 + r)ᵗ for annual compounding.

   Units and conditions: Use the annual rate as a decimal and t in years.

   Worked example: A$1,250 at 4% annually for two years becomes A$1,352.

2. Finance · effective annual rate

   Formula or reference: Effective rate = (1 + i/n)ⁿ − 1.

   Units and conditions: i is the nominal annual rate and n is the compounding frequency per year.

   Worked example: A nominal 8% compounded quarterly gives an effective rate of about 8.24%.