Integrate relevant sources to support assertions, correctly formatting citations and references using APA style. 2022 latest answers

Did you use 3–5 sources?

Are they cited in APA format throughout the plan?

Have you included an attached reference list?

Answers to Activity 4.3  

1 Charging 5% on £10,000 at the end of the year would mean an  

interest charge of £500 (0.05×£10,000).  

2 Although the same initial sum of £10,000 is borrowed, total interest  

on the reducing-balance loan is lower (£266.79) than interest on the  

loan in Question 1 (£500). This is because, in Question 1, £10,000  

is borrowed for the full year: in other words, the average amount  

owed during the year is always £10,000. By contrast, with the  

reducing-balance loan, part of the principal is being paid back each  

month. This means only £852.09 of the loan (the amount  

outstanding at the start of month 12) is borrowed for the whole  

year: £1700.73 of the loan is borrowed for 11 months; £2545.93  

for 10 months, and so on. The full £10,000 is borrowed only for  

one month. Taking the year as a whole, the average amount owed is  

around £5400 (the amount outstanding halfway through the year,  

between months 6 and 7). Since the average sum borrowed is lower,  

the total interest charged is also lower.  

Answers to Activity 4.5  

1 Mark pays 10% × £10,000 = £1000 interest each year. This is a  

nominal value – it’s the cash sum he pays each year.  

2 If prices have risen by 63% over the last ten years, the real value of  

the interest payments today is lower. One way of thinking about  

this is that ten years ago, Mark had to give up £1000 of goods and  

services in order to pay the interest on this loan, which was 5% of  

his pay (£1000/£20,000). Today, he has to give up fewer goods  

and services in order to pay the interest: only 3% of his pay  


3 You can use the simplifified formula in Section 5.2 of this chapter to  

work out that the annual interest rate is 10% − 5% = 5% a year.  

Interest is adding 10% a year to the cost of the loan, but in real  

terms, inflflation is reducing the cost by 5% a year.