Answer to Question #290683 in Financial Math for Riya

Question

A sum of 45000 invested will provide payments of 500 each at the end of every 2 months for 7 years find the under lying rate of interest compounded semi annualy

Answer 1

Solution:

PV of payments $=500\times 3\times \dfrac{1-(\dfrac1{(1+\frac r2)^{7\times 2}})}{\frac r2}$

Invested sum = 45000

So, $45000=15000\times \dfrac{1-(\dfrac1{(1+\frac r2)^{7\times 2}})}{\frac r2}$

$\Rightarrow \dfrac {3r}2=1-\dfrac1{(1+\frac r2)^{14}} \\ \Rightarrow \frac r2=0.326984 \\ \Rightarrow r=0.653968 \\\Rightarrow r=65.3968\%$