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# Financial mathematics simple discounting question watch

1. 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
2. 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.

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Updated: February 5, 2017
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