Credit/borrowing (1 Viewer)

[orly?]

Could anyone help me with this please?

'Calculate the interest paid on $1000 at 12% pa interest compounding monthly over one year.'

and

'Using the approximation formula (r = 2nR/n + 1)*, calculate the effective interest rate for this loan using simple interest..

a) $5000 over 2 years at 16% pa flat interest with repayments quarterly.'

OH!.. and for questions like find etc etc compounded monthly, quarterly, six monthly... for QUARTERLY, why do we divide by 4? why not 3? isn't 1/4 of a year 3 months? :-/

thanks in advance

* ...
where n is the number of payments
R is the flat rate
r is the effective rate

 

[watatank]

Could anyone help me with this please?

'Calculate the interest paid on $1000 at 12% pa interest compounding monthly over one year.'

A = P(1+R)^n

P = 1000 (doesn't change)
R = 12%/12 = 1% (change per annum rate to per month rate)
n = 12 (since the interest is compounded 12 times)

'Using the approximation formula (r = 2nR/n + 1)*, calculate the effective interest rate for this loan using simple interest..

a) $5000 over 2 years at 16% pa flat interest with repayments quarterly.'

thanks in advance

* ...
where n is the number of payments
R is the flat rate
r is the effective rate

n = 8 (4 every year, since its quarterly)
R = 16%/4 = 4% monthly flat interest

solve for r

 

[watatank]

OH!.. and for questions like find etc etc compounded monthly, quarterly, six monthly... for QUARTERLY, why do we divide by 4? why not 3? isn't 1/4 of a year 3 months? :-/

quarterly means four payments? six monthly is every half year, so divide per annum rate by two?