Answer to Question #240581 in Civil and Environmental Engineering for Alan Enrico V Tuib

Question

A businessman borrows P20,000 for his operations. One financial institution is willing to lend him money
for one year at a discounted interest rate of 10.5% per annum. What is the effective rate?

Answer 1

Here, P = 1000, r = 0.08, and m = 1. 

  Thus, i = r = 0.08 and n = 3, so

 $A=P(1+r/m)^n$

$=1000(1+0.08/1)^3$

$=1000(1.08)^3$

=1259.71

or $1259.71.

once again but m value is changed

Here, P = 1000, r = 0.08, and m = 2. 

  Thus,  and n = (3)(2) = 6, so

 $A=P(1+r/m)^n$

$=1000(1+0.08/2)^3$

$=1000(1.04)^3$

  $1265.32.