Thread: 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,

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