1.1.Mrs. Singh owes Mr. Valdy $55,513.78 in 14-months. Mr. Valdy agrees to let her repay the loan with a payment of $35,000 in 6-months, $10,000 in 8-months and $X in 14-months. If money is worth j4 = 6%, what is the value of X, using 14-months as the focal date along with the exact method of crediting/charging interest?
2.2.A car insurance company charges you a premium of $1452 a year for your car insurance policy. You have two options. Option 1 is to pay the $1452 in cash today. Option 2 is to make three payments of $499 at the following times: today, 3-months from now and 6-months from now. What nominal rate of interest, j4, are you being charged?
1.2 according the question factor establish the equation 1452*(1+j)^6=499*[(1+j)^6+(1+j)^3+1],
replace (1+j)^3 with r,therefore: (1452-499)*r^2-499*r-499=0,
the solution for above equation is r=1.031318583,
hence j=r^(1/3)-1=1.0103324-1=0.010,
thus we can get nominal rate of interest j4=12*j=0.12≈12%.