Question

A tractor bought for R120 000 depreciates to R11 090,41 after 12 years by using the reducing balance method. Calculate the rate of depreciation per annum if the rate was fixed over the 12 years, and calculate the effective interest rate if interest is 9,8% p.a., compounded monthly.

Answer 1

P = Po - Po*r*t = 11,090.41
120,000 - 120,000*r*12 = 11,090.41
-1,440,000r = 11,090.41 - 120,000
r = 0.0756 = 7.56% per annum