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Home Aptitude Compound Interest Comments

  • Question
  • Kramer borrowed $4000 from George at an interest rate of 7% compounded semiannually. The loan is to be repaid by three payments. The first payment, $1000, is due two years after the date of the loan. The second and third payments are due three and five years, respectively, after the initial loan. Calculate the amounts of the second and third payments if the second payment is to be twice the size of the third payment.


  • Options
  • A. 1389
  • B. 1359
  • C. 1379
  • D. 1339.33

  • Correct Answer
  • 1339.33 

    Explanation

    Given:j=7% compounded semiannually making m=2 and i = j/m= 7%/2 = 3.5%
    Let x represent the third payment. Then the second payment must be 2x.
    PV1,PV2, andPV3 represent the present values of the first, second, and third payments.

    Since the sum of the present values of all payments equals the original loan, then
    PV1 + PV2  +PV3  =$4000 -------(1)

    PV1   =FV/(1 + i)^n  =$1000/(1.035)^4=  $871.44

    At first, we may be stumped as to how to proceed for
    PV2 and PV3. Let?s think about the third payment of x dollars. We can compute the present value of just $1 from the x dollars

    pv=1/(1.035)^10=0.7089188

    PV2   =2x * 0.7089188 = 1.6270013x
    PV3   =x * 0.7089188=0.7089188x
    Now substitute these values into equation ? and solve for x.
    $871.442 + 1.6270013x + 0.7089188x  =$4000

    2.3359201x  =$3128.558

    x=$1339.326
    Kramer?s second payment will be 2($1339.326)  =$2678.65, and the third payment will be $1339.33


  • Compound Interest problems


    Search Results


    • 1. If an investment can earn 4% compounded monthly, what amount must you invest now in order to accumulate $10,000 after 3 years?

    • Options
    • A. 8695.61
    • B. 6786
    • C. 3478
    • D. 4092
    • Discuss
    • 2. Other things being equal, would an investor prefer an interest rate of 10.5% compounded monthly or 11% compounded annually for a two-year investment?

    • Options
    • A. 1232
    • B. 1243
    • C. 1254
    • D. 1262
    • Discuss
    • 3. Determine the nominal rate of interest if: The periodic rate is 0.83% per month

    • Options
    • A. 7%
    • B. 8%
    • C. 9%
    • D. 10%
    • Discuss
    • 4. Calculate the periodic interest rate corresponding to 9.5% compounded monthly

    • Options
    • A. 0.7916
    • B. 0.8916
    • C. 0.9916
    • D. 0.6916
    • Discuss
    • 5. Calculate the periodic interest rate corresponding to:9.0% compounded quarterly

    • Options
    • A. 3.45
    • B. 2.25
    • C. 5.25
    • D. 6.25
    • Discuss
    • 6. What amount must you invest now at 4% compounded monthly to accumulate $10,000 after 3 year

    • Options
    • A. 8695
    • B. 7695
    • C. 3695
    • D. 4695
    • Discuss
    • 7. What periodic payment will an investor receive from a $9000, four-year, monthly payment GIC earning a nominal rate of 5.25% compounded monthly?

    • Options
    • A. 29.38
    • B. 39.38
    • C. 49.38
    • D. 59.38
    • Discuss
    • 8. At what rate of compound interest per annum will a sum of Rs 10000 become Rs 12321 in 2 years?

    • Options
    • A. 22 percent
    • B. 11 percent
    • C. 7 percent
    • D. 15 percent
    • Discuss
    • 9. If the amount received at the end of 2nd and 3rd year as Compound Interest on a certain Principal is Rs 2100, and Rs 2268 respectively, what is the rate (in %) of interest?

    • Options
    • A. 7
    • B. 8
    • C. 9
    • D. 10
    • Discuss
    • 10. A bank offers 15% compound interest per half year. A customer deposits Rs 7200 each on 1st January and 1st July of a year. At the end of the year, the amount he would have gained by means of interest is

    • Options
    • A. Rs 6803
    • B. Rs 850
    • C. Rs 3402
    • D. Rs 1701
    • Discuss


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