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Thread: compound interest problem

  1. #1
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    compound interest problem

    can some one please help me with this question

    A sum of $300.24 is paid into a loan account at the end of every month for 5 years. Calculate the present value of the payments if interest is calculated on the basis of 7.5% per annum convertible quarterly.



    The answer is $15,000.
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  2. #2
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    Re: compound interest problem

    Quote Originally Posted by edwardkiely View Post
    A sum of 300.24 is paid into a loan account at the end of every month for 5 years.
    Calculate the present value of the payments if interest is calculated on the basis of 7.5% per annum convertible quarterly.
    The answer is 15,000.
    7.5% per annum convertible quarterly =
    (1 + .075/4)^4 - 1 = .077136, so ~7.7136% effective per annum.

    Formula to calculate PV of annuity: PV = p[1 - 1/(1 + i)^n] / i
    p = 300.24
    n = 5*12 = 60
    i = .077136/12
    That'll give PV = 14907.94

    So (unless I goofed) there's something wrong with the problem as posted
    You sure 300.24 is correct?
    302 gives ~14,995
    303 gives ~15,044
    Perhaps the 300.24 should be 302.40: then all would be fine!!
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