GUESS AND CHECK SOLUTIONS
In
Math for Business and Life, 4th edition,
we solve time-value-of-money problems with
three different methods: (1) compound interest
formulas, (2) compound interest tables, and
(3) financial calculators. As you may recall, there
is no compound interest formula that will calculate i when
a periodic payment is involved; for these problems,
we can use the Guess and Check Method, explained
in Unit 11.4 of the text.
With the Guess and Check Method we use one of the other compound
interest formulas, apply an estimated rate, and compare the result
against a target figure. If the result is not close enough to the
target figure, we use other rates until the result matches (or is
sufficiently close to) the target figure.
In this section of our Web site, we will offer a Guess and Check
solution for a variety of problems in which we want to solve for
i and there is a periodic payment involved—problems
for which there is no formula available for solving directly for
i. The problems we will solve come from the following units of Math
for Business and Life, 4th edition: Unit 19.2 (Solving for interest
rate paid), Unit 19.4 (Solving for interest rate earned) , and Unit
19.5 (Cash flow problems). Here are a few things to remember:
- The compound interest formulas are shown in Illustration 10-1 of the text.
- Appendix E of the text includes several mathematical concepts that are important in using the compound interest formulas: exponents, order of operations, chain calculations, reciprocals, and logarithms.
- Calculator information is shown as a separate link on this Web site; keystrokes for several popular calculators are provided for each of the formulas.
The Guess and Check solutions are in PDF format.
You must have Acrobat Reader 4.0 or above. If
you already have Acrobat Reader 4.0 or above,
click Guess and Check Solutions below;
the solutions will be shown in a separate window. Note: You
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