Easy-ish compound discount/interest conversions....

• Jun 10th 2012, 01:37 PM
Outsanity
Easy-ish compound discount/interest conversions....
An account is governed by compound interest. The discount for three years on \$2120 is \$250. Find the amount of interest for two years on \$380.

I guess my first question is "What is the meaning of "The discount for three years on \$2120 is \$250"?"
Is it accumulating on a discount, and that's the amount accumulated? Or is it like, borrowing on a discount, and that's the amount paid in advance?

Secondly, how would I solve that?

Thanks,
• Jun 10th 2012, 06:13 PM
Wilmer
Re: Easy-ish compound discount/interest conversions....
Quote:

Originally Posted by Outsanity
An account is governed by compound interest. The discount for three years on \$2120 is \$250. Find the amount of interest for two years on \$380.

I guess my first question is "What is the meaning of "The discount for three years on \$2120 is \$250"?"
Is it accumulating on a discount, and that's the amount accumulated? Or is it like, borrowing on a discount, and that's the amount paid in advance?

2120 due in 3 years is worth 2120-250 = 1870 today
Need to calculate interest rate compounded annually:
1870(1 + r)^3 = 2120 ; solve to get r = ~.0427 (~4.27%).

Calculate 2 years at that rate on 380:
380(1.0427)^2 = ? ; wrap it up (Nod)