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  1. #1
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    Math question

    Peter buys a ski vacation package priced at $2754. He pays $350 down and finances the balance at $147 per month for 1.5 years. Determine the annual interest rate, compounded monthly, being charged.

    The only financial question in my text book that i could not solve. Any help would be appreciated. Thanks!
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  2. #2
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    350 was paid straight away so no interest acted upon it.so he needed to pay 2404.
    147 for 1.5yrs=18months is 147(18)=2646

    so 2404(1+\frac{r}{12})^{12(1.5)}=2646

    solving for r gives you the annual interest rate compounded monthly
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  3. #3
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    (1+ r/12)^18=1.1
    (1+r/12)= 18 x sq rt of 1.1
    r/12= 1.005 -1
    r= 0.005 x 12
    (am i going the right direction?)

    so the interest rate compounded monthly is approximately 6%??

    Tvm for the quick reply. =)
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  4. #4
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    yep about 6.4%
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  5. #5
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    I don't follow/understand what BOTH of you are doing

    Formula for loan payments:
    P = Ai / (1 - k) where k = 1 / (1+i)^n

    P = payment (147)
    A = amount borrowed (2404)
    n = number of months (18)
    i = monthly rate (?)

    That CANNOT be solved directly: iteration is required.
    The rate will be ~12.357% annual, cpd monthly.
    All I can say is look up "iteration" or get teacher to demonstrate;
    can't teach that here!
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  6. #6
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    lol Wilmer, i also had no idea what i was doing, was only following Krahl's equation and solving for 'r' o.o

    and yea, Wilmer your answer is correct according to the back of the text book. I just wanted to know if there was another way of solving the question without using 'guess and check'. And I was also told that this question was not even meant for grade 11. >.<
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  7. #7
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    oh yes thanks wilmer. paying monthly you have to remember that 147 is worth more now than it does later.

    so

    \frac{147}{(1+r)^{n-1}}+\frac{147}{(1+r)^{n-2}}+...+\frac{147}{(1+r)}=2404

    and you get wilmer's formula

    my bad
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