Question

19. You lend a friend $10,000 for which your friend will repay you $27,027 at the end of 5 years. What interest rate are you charging your "friend"? 20. (Nonannual compounding using a calculator) Bowflex's television ads say you can get a fitness machine that sells for $999 for $33 a month for 36 months. What rate of interest are you paying on this Bowflex loan? i= 11,627 21. One bank offers you 5% interest compounded semi-annually. What is the equivalent rate if interest'is compounded quarterly?
only questions 19 and 21. please show all steps

Answer 1

19.

Calculating the Interest Charged using the Interest Compounded Formula:-

Future Value = Principal (1+Interest rate)^{No of Period}

where, Future Value = $ 27027

Principal = $10,000

No of Period = 5

Note- We are assuming that interest is componded annually.

27027 = 10000(1+r)⁵

2.7027 = (1+r)⁵

taking 5root on both sides,

1.22 = (1+r)

r = 1.22-1

r = 0.22 or 22%

So, Interest rate charged is 22% compounded annually.

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