math/finance guys..need a little help

[Francodman]

Ok, now usually i'm not a batch and ask for help online..but this one's bugging me, and considering i havne't taken a math course in about 3 semesters, i need help...
my friend called me and wanted to know how to solve this problem..she's really on my back about it so any help and 100 grasshopper points to you


Someone takes a loan out for the amount of 5200. It accumulates 1125 in interest during the term. the interest rate is 7% compounded annually i think. Anyway, they wanna know the term. she said the answer was 37 months... anyone know how to figure it out?

 

[RagingBITCH]

All she has to do is plug in the formula and solve for T (t being term)

 

[Joker81]

hmm usually its compounded monthly with some sort of payment per month. but maybe im wrong.

maybe this website will help. http://www.math.edcc.edu/117/text/4_41.html

 

[Francodman]

Originally posted by: RagingBITCH
All she has to do is plug in the formula and solve for T (t being term)

thats the thing.. i did :

6325=5200(1.07)^n and n figured to be ~2.9 years which is 35 months correct?

 

[Zenmervolt]

The term is 2.8947 compounding periods. That's assuming that the 7% is the rate at which interest is applied each period.

If the 7% is the APR and the interest is compounded monthly, then the monthly compounding rate is 7/12 or 0.5833%. If this is the case, then it's 33.6724 months.

Given that this is likely a simple introductory course, the second answer is almost certainly too in-depth.

Here's the simple equation for compound interest: FV = PV (1+R)^T

Where:
FV = Future Value (i.e. initial investment plus the total accumulated interest)
PV = Present Value (i.e. the value of the initial investment)
R = Interest rate in raw value (e.g. 7% is 0.07)
T = Number of compounding periods

Unfortunately, in the real world, you don't get to have fractional compounding periods since if you withdraw money before the end of the compounding period you forfeit that interest so if it is indeed compounded yearly, then you really only get two interest payments and not 2.9847 interest payments in the real world, which means that you'll never get exactly $1,125 in interest given the parameters of that investment. This is far overkill for your class though.

ZV

 

[axelfox]

Use the above with a financial calc and plug it in

 

[Zenmervolt]

Originally posted by: axelfox
Use the above with a financial calc and plug it in

Have to know the settings though. If you have it set on 12 compoundings per period then things become interesting. There are a whole bunch of neat ways to make the calculator give you anything except what you want.

ZV