Question

An account is governed by compound interest. The interest for three years on $480 is $52. Find the amount of discount for two years on $1000.

Answer 1

Answer:

$66.27

Explanation:

using the present value formula:

($480 + $52) = $480 / (1 + r)³

$532 = $480 / (1 + r)³

(1 + r)³ = $532 / $480 = 1.108333

∛(1 + r)³ = ∛1.108333

1 + r = 1.0349

r = 0.0349 = 3.48%

if you are going to discount $1,000 by 3.48% during 2 years:

PV = $1,000/1.0348² = $933.73

the discount = $1,000 - $933.73 = $66.27