This economics question tests your understanding of economic models and analysis. The step-by-step answer below applies the relevant framework and explains the reasoning.
ScanSolve AI Answer
Let's calculate the interest on capital for Richard and Peter. The financial year runs from 1 July 2016 to 30 June 2017. The interest rate is 10% per year. Step 1: Determine Richard's capital balances throughout the year. Richard's capital at 30 June 2017 is R200 000. He decreased his capital by R50 000 on 31 December 2016. Capital from 1 July 2016 to 31 December 2016 (6 months): R200 000 (current balance) + R50 000 (decrease) = R250 000 Capital from 1 January 2017 to 30 June 2017 (6 months): R200 000 Step 2: Calculate Richard's interest on capital. Interest = (Capital for period 1 × Rate × Time) + (Capital for period 2 × Rate × Time) Interest for Richard = (R250 000 × 10% × 6/12) + (R200 000 × 10% × 6/12) Interest for Richard = (R250 000 × 0.10 × 0.5) + (R200 000 × 0.10 × 0.5) Interest for Richard = R12 500 + R10 000 Interest for Richard = R22 500 Step 3: Determine Peter's capital balances throughout the year. Peter's capital at 30 June 2017 is R200 000. He increased his capital by R50 000 on 1 January 2017. Capital from 1 July 2016 to 31 December 2016 (6 months): R200 000 (current balance) - R50 000 (increase) = R150 000 Capital from 1 January 2017 to 30 June 2017 (6 months): R200 000 Step 4: Calculate Peter's interest on capital. Interest = (Capital for period 1 × Rate × Time) + (Capital for period 2 × Rate × Time) Interest for Peter = (R150 000 × 10% × 6/12) + (R200 000 × 10% × 6/12) Interest for Peter = (R150 000 × 0.10 × 0.5) + (R200 000 × 0.10 × 0.5) Interest for Peter = R7 500 + R10 000 Interest for Peter = R17 500 Final Answer: Richard's interest on capital is R22 500. Peter's interest on capital is R17 500.