Task 2: Financial Literacy
1. Introduction
This task aims to develop your financial literacy skills by exploring concepts and calculations related to personal finance. You will use your knowledge and understanding of mathematical literacy to make informed decisions about savings, investments, and budgeting.
2. Savings and Investments
a) Imagine that you have a savings account with an initial deposit of R5,000 and an interest rate of 7% per annum. Calculate the interest earned after 3 years using simple interest.
Solution:
The formula for simple interest is:
I = (P x r x t)/100
Where:
I = Interest earned
P = Principal amount (initial deposit)
r = Interest rate per annum
t = Time period in years
Plugging in the values, we get:
I = (5,000 x 7 x 3)/100
I = R1,050
Therefore, the interest earned after 3 years is R1,050.
b) Compare the interest earned in part (a) with the interest earned using compound interest, assuming that the interest is compounded annually.
Solution:
The formula for compound interest is:
A = P(1 + r/n)^(nt)
Where:
A = Final amount (including interest)
P = Principal amount (initial deposit)
r = Interest rate per annum
n = Number of times interest is compounded per year
t = Time period in years
Assuming that the interest is compounded annually (n=1), we can calculate the interest earned after 3 years as follows:
A = 5,000(1 + 0.07/1)^(1 x 3)
A = R6,305.02
Therefore, the interest earned using compound interest is R6,305.02 - R5,000 = R1,305.02.
c) Explain which type of interest (simple or compound) would be more beneficial for long-term savings, and why.
Compound interest would be more beneficial for long-term savings because it allows for the interest to be added to the principal amount, resulting in a higher return on investment. As the interest is earned on both the principal amount and the accumulated interest, the growth of the investment is exponential over time. In contrast, simple interest only applies to the initial principal amount, and the interest earned remains constant over the time period.
3. Budgeting
a) Assume that your monthly income is R10,000. Create a budget plan that includes your monthly expenses for the following categories:
- Housing (rent or mortgage)
- Transport (car payment, fuel, etc.)
- Food and groceries
- Utilities (water, electricity, internet, etc.)
- Entertainment (movies, dining out, etc.)
- Savings
Solution:
Monthly Income: R10,000
Housing: R3,500
Transport: R1,500
Food and groceries: R2,000
Utilities: R1,500
Entertainment: R1,000
Savings: R1,500
Total Expenses: R11,000
Monthly Deficit: R1,000
b) Identify one strategy for reducing your monthly expenses to eliminate the deficit.
One strategy for reducing monthly expenses would be to limit entertainment expenses such as dining out or going to the movies. Instead, you could choose to cook at home, rent movies, or participate in free activities such as visiting public parks or libraries. Cutting back on this category could help reduce the monthly deficit.
NATIONAL CERTIFICATE VOCATIONAL MATHEMATICAL LITERACY NQF LEVEL 3 ASSIGNEMENT TASK 2
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