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# Compound Interest - Future Value and Present Value

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Looking for some help on this question.

1. Find the proceeds of a promissory note with a maturity value of \$1600 due on July 31, 2023, discounted at 9.9% compounded quarterly on April 30, 2021

The proceeds are \$_____?

Apr 1, 2021

#1
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I have forgotten what many of these words mean.

If you tell us what you already understand of the question then maybe you will be more likely to get a helpful answer.

Does it mean that you have to pay \$1600 total on the 31st July 2023

But if you pay early you will pay less (because less interest is added) so if you pay it out on 30th April you will pay a discounted price.

Mmm, that sounds feasable.

So you are going to pay it out 2 years and 3 months early.  That is  11 quarter years

Interest rate per quarter = 9.9% / 4 =  2.475%  =  0.02475

\(discounted \;\;amount = \$1600*(1-0.02475)^{11}\\ discounted \;\;amount = \$1600*(0.97525)^{11}\\ discounted \;\;amount \approx \$1600*0.759059\\ discounted \;\;amount \approx 1214.494442\\~\\ discounted \;\;amount \;\;payable \;\;is\;\; \$1214.49\\\)

Apr 1, 2021
#2
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MY ASSUMPTION IS   how much is needed in April to have 1600 nine quarters later?

From April 30, 2021 to July 31, 2023    is  NINE quarters    (Melody used 11 here....hmmmmmm I think she added 8 quarters and 3 months =11)

9.9%   is   .099 in decimal         .... the   period (quarter) interest is  .099/4 = .02475

1600 = x (1 + .02475)9

x = \$ 1283.98

SO the PROCEEDS would be   1600 - 1293.98  = \$ 316.02

Apr 1, 2021
#3
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Thanks for pointing that out EP I was thinking about changing my answer but it is still the same only with a power of 9 instead of 11.

Obviously, the final answer will be different but I don't care so much about my final answers.

It is the method I am showing.

Apr 2, 2021
edited by Melody  Apr 2, 2021