# Interest

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• May 26th 2008, 10:13 AM
VDestinV
Interest
I am working on interest questions and there are a few I cannot figure out.

1) Calculate the present value of each investment, given the final value of the investment.

b) $10 775.64 after 50 years at 8% compounded monthly. 2) John loans$6000 to his sister, Sally. Sally agrees to pay him back 7 years later at a rate of 8% compounded weekly. How much interest does Sally have to pay.

3) An investment grows from $600 to$1200 in 9 years. If interest was compounded monthly, what was the annual rate?

I know I have to use the formula:

PV= A/(1+i)^n

but how?
• May 26th 2008, 10:39 AM
Reckoner
Quote:

Originally Posted by VDestinV
I know I have to use the formula:

PV= A/(1+i)^n

but how?

If you know the formula, it should be fairly simple. Just substitute in the appropriate values, and solve for the unknown.

For example, for number 1, you should have

$A = P\left(1 + \frac r n\right)^{nt}$

$\Rightarrow10775.64 = P\left(1+\frac{0.08}{12}\right)^{12\cdot50}$

Solve for the principle $P$.

For number 2, subtract the present value from the future value to get the interest paid, and for number 3, just substitute and solve for $r$.
• May 26th 2008, 10:50 AM
VDestinV
Quote:

Originally Posted by Reckoner
If you know the formula, it should be fairly simple. Just substitute in the appropriate values, and solve for the unknown.

For example, for number 1, you should have

$A = P\left(1 + \frac r n\right)^{nt}$

$\Rightarrow10775.64 = P\left(1+\frac{0.08}{12}\right)^{12\cdot50}$

Solve for the principle $P$.

For number 2, subtract the present value from the future value to get the interest paid, and for number 3, just substitute and solve for $r$.

but where did you get the r from?
• May 26th 2008, 11:02 AM
Jonboy
Reckoner used a different formula then your PV= A/(1+i)^n that contains r.
• May 26th 2008, 11:11 AM
VDestinV
Quote:

Originally Posted by Jonboy
Reckoner used a different formula then your PV= A/(1+i)^n that contains r.

but would my teacher approve of it?
• May 26th 2008, 11:15 AM
Jonboy
Quote:

Originally Posted by VDestinV
but would my teacher approve of it?

I'm not for sure. I've never seen your formula before, but I've not done too many problems of this sort. Can you explain what everything means in your formula so we can show you how to use it with this problem?
• May 26th 2008, 11:41 AM
VDestinV
Pv=A/(1+i)^n

PV= present value
A= final amount
i is the interest rate
n is the number of compounding periods