I'm stuck on the following question:
I'm on 2a and I'm unclear as to what the question is asking, I have tried many formulas and techniques, I can't even reverse engineer from the answer it has given. I know the simple rate of discount p.a is 18% so d=0.18, We borrow some X money and settle it 3 months later n= 3/12 with £1000 (Final capital). I can't get the right answer for the amount borrowed or the effective rate (AER) of discount.
What formula do I have to use here? I can't figure it out
Turn on thread page Beta
Financial mathematics simple discounting question watch
- Thread Starter
- 05-02-2017 16:57
- 05-02-2017 23:36
I think there's a mistake in the given answer: the amount borrowed should be £955, not £965.
If you let p be the period of the load as a fraction of a year, and you use the 2 formulae:
Amount borrowed = £1000 x (1 - 0.18p)
Effective discount rate =
you get matches for the other 3 answers.
Edit: Disclaimer, I know nothing about this topic, just did a bit of googling.