Thread: Help with an interest problem.

"An account is governed by compound interest. The interest for three years on $480 is $52. Find the amount of discount for two years on $1000."

I've been stuck on this for a long time, because my thinking leads me to believe I'm correct, but I'm not getting the right answer according to the back of the book.

I need the answer pretty soon, hopefully someone can help me in time!

(Here is my drawn out attempt at a solution)
First I want to find the interest rate:

480(1+i)^3=532
After solving I get:
i = .0348803282

There are 2 ways to get the discount amount, one is by converting the interest rate to the discount rate and using the compound discount accumulation function (1-d)^-t, but the easiest way is just using the compound interest formula since they are equivalent.

So I do: 1000(1+.0348803282)^2 = 1070.977294
Subtract 1000 from that value to obtain the answer:
$70.98

But this is wrong! The back of the book says the answer is $66.27. And on a different problem very similar to this one, I also obtain an incorrect result.

Originally Posted by paulrb

So I do: 1000(1+.0348803282)^2 = 1070.977294
Subtract 1000 from that value to obtain the answer:
$70.98

But this is wrong! The back of the book says the answer is $66.27. And on a different problem very similar to this one, I also obtain an incorrect result.

Did you try solving P(1+i)^2 = 1000 for P and calculating the difference from 1000?

Ohh...thank you! I was thinking incorrectly...it makes sense now.