Question

10. Joe borrowed $1000 and agreed to pay $1200 in settlement of the debt in 3 years and 3 months. What annual nominal rates compounded quarterly was charged on the debt?

Answer 1

Answer: 1.2%

Step-by-step explanation:

A = P(1 + r/n)^nt

A = final amount

P = initial principal balance

R = interest rate

n = number of time interest per time period

t = number of time period elapsed

A = P(1 + r/n)^nt

1200 = 1000 (1 + r/4)^ 4*15

1200 = 1000 (1 + r/4)^60

1200 = 1000 (4 + r/4)^60

1200/1000 = (4+r/4)^60

1.2 = (4+r/4)^60

Take the 60 root of both sides

1.0030433 = (4+r/4)

4 * 1.0030433 = 4 + r

4.01217 = 4 + r

r = 4.01217 - 4

r = 0.012 = 1.2%