Greenview Retailers invested an amount of R20 000 at 16% simple interest over a period of two years in a fixed deposit with Unity Bank. 4.2.1 Calculate the interest that Greenview Retailers will receive after two years. Show ALL calculations. 4.2.2 Discuss the advantages of fixed deposits as a form of investment.

NSC Business Studies Actions regarded as discriminatory by the Acts: Greenview Retailers invested an

Greenview Retailers invested an amount of R20 000 at 16% simple interest over a period of two years in a fixed deposit with Unity Bank - NSC Business Studies - Question 4 - 2023 - Paper 2

Question 4

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Greenview Retailers invested an amount of R20 000 at 16% simple interest over a period of two years in a fixed deposit with Unity Bank. 4.2.1 Calculate the interest... show full transcript

Worked Solution & Example Answer:Greenview Retailers invested an amount of R20 000 at 16% simple interest over a period of two years in a fixed deposit with Unity Bank - NSC Business Studies - Question 4 - 2023 - Paper 2

Step 1

Calculate the interest that Greenview Retailers will receive after two years. Show ALL calculations.

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Answer

To calculate the interest earned on a fixed deposit, we use the formula for simple interest:

$I = P imes r imes t$

where:

I = interest
P = principal amount (initial investment)
r = annual interest rate (in decimal)
t = time (in years)

Plugging in the given values:

P = R20,000
r = 16/100 = 0.16
t = 2 years

Calculating the interest:

$I = R20,000 imes 0.16 imes 2$

$I = R20,000 imes 0.32$

$I = R6,400$

Thus, the interest that Greenview Retailers will receive after two years is R6,400.

Step 2

Discuss the advantages of fixed deposits as a form of investment.

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Answer

Fixed deposits offer several advantages:

1. Guaranteed Returns

The interest rate on fixed deposits is typically higher than regular savings accounts, providing guaranteed returns on the invested amount. This helps in maximizing savings.

2. Safety of Principal

Fixed deposits are generally considered safe as they are often insured by financial authorities, thus minimizing the risk of losing the principal amount.

3. Fixed Tenure

Investors can choose the duration of the deposit, allowing them to align their investment with specific financial goals.

4. Less Volatility

Compared to equities or mutual funds, fixed deposits are less volatile, providing certainty in returns, which is beneficial for risk-averse investors.

5. Ease of Management

Opening and managing a fixed deposit account is straightforward, requiring less active management compared to other investment types, making it ideal for those who prefer a hands-off approach.

These factors contribute to making fixed deposits an attractive investment option for individuals looking to grow their savings securely.