Question

A specific type of financial instrument pays 15% simple interest (based on the purchase value) and lasts for 1.5 years. The instrument can be bought at any price. An investor purchases the instrument for P0, and has calculated that the total value of the investment (i.e. P0 plus interest earned) will be $4,000 at maturity.

Answer 1

Step-by-step explanation: For this, we can use the formula

A=P0(1+rt).

We know that A=$4,000,r=15%=0.15 and t=1.5, so we can rearrange the formula for A to give

P0=A1+rt,

and substituting the known quantities gives

P0=$4,0001+0.15×1.5=$4,0001.225=$3,265.30..,

which is $3,265 to the nearest dollar.

Answer 2

Correct answers:

$3265$

For this, we can use the formula

A=P0(1+rt).

We know that A=$4,000,r=15%=0.15 and t=1.5, so we can rearrange the formula for A to give

P0=A1+rt,

and substituting the known quantities gives

P0=$4,0001+0.15×1.5=$4,0001.225=$3,265.30..,

which is $3,265 to the nearest dollar.

Explanation: