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Math Help - Help with an interest problem.

  1. #1
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    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.
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  2. #2
    MHF Contributor
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    Quote Originally Posted by paulrb View Post
    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?
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  3. #3
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    Ohh...thank you! I was thinking incorrectly...it makes sense now.
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