Asked by Jacob Kenney on May 20, 2024
Verified
The contract for a $4,000 loan at 9% compounded quarterly requires two payments. The first payment of $2,000 is required two years after the date of the loan. (It is applied to the balance owed after conversion of interest to principal every three months.) A second payment in the amount needed to pay off the loan is due one year later. What price would an investor pay for the contract six months after the date of the loan to earn 10% compounded semi-annually on the purchase price?
Investor
Someone or a group that puts money into ventures aiming for a return in terms of finance.
Compounded Quarterly
Calculation of interest every quarter where the interest added also earns interest in the next quarter, compounding the initial investment's growth.
Principal
Principal refers to the initial sum of money borrowed in a loan or the original amount invested, excluding any interest or dividends.
- Evaluate similar monetary amounts given differing interest rates and compounding durations.
- Assess and tackle problems associated with borrowing, financial transactions, investments, and profit outcomes.
- Apply compound interest formulas for quarterly, semi-annually, and annually compounding frequencies.
Verified Answer
AW
Learning Objectives
- Evaluate similar monetary amounts given differing interest rates and compounding durations.
- Assess and tackle problems associated with borrowing, financial transactions, investments, and profit outcomes.
- Apply compound interest formulas for quarterly, semi-annually, and annually compounding frequencies.