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    • Thread Starter

    I'm stuck on the following question:
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    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

    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 = 1 - (1 - 0.18p)^{1/p}

    you get matches for the other 3 answers.

    Edit: Disclaimer, I know nothing about this topic, just did a bit of googling.
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Updated: February 5, 2017
“Yanny” or “Laurel”
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