Read the scenario below and answer the questions that follow - NSC Business Studies - Question 3 - 2019 - Paper 1

To calculate the compound interest, we can use the formula:

$A = P(1 + r)^n$

Where:

• $A$ is the amount of money accumulated after n years, including interest.
• $P$ is the principal amount (initial investment).
• $r$ is the annual interest rate (decimal).
• $n$ is the number of years the money is invested.

In this case:

• $P = 500000$ Rands
• $r = 0.12$
• $n = 3$

Plugging in the values:

$A = 500000(1 + 0.12)^3$ $A = 500000(1.12)^3$ $A = 500000(1.404928)$ $A ≈ 702464$

Total interest earned:

$ext{Total Interest} = A - P$ $ext{Total Interest} = 702464 - 500000 ≈ 202464$

Thus, Nellie will receive approximately R202464 in interest after three years.

Another type of interest that could be offered by Ithuba Bank is simple interest. Unlike compound interest, simple interest is calculated only on the principal amount throughout the investment period.