On March 24, 2014, Brendan and Madison borrow $18,000 each at a simple interest rate r = 12%. Brendan's bank calculates interest using exact interest, while Madison's bank uses the Banker's Rule (ordinary interest). Let X = amount Brendan pays back on September 24, 2014, and Y = amount Madison pays back on September 24, 2014. What is the value of X - Y?

On March 24, 2014, Brendan and Madison borrow $18,000 each at a simple interest rate r = 12%. Brendan's bank calculates interest using exact interest, while Madison's bank uses the Banker's Rule (ordinary interest). Let X = amount Brendan pays back on September 24, 2014, and Y = amount Madison pays back on September 24, 2014. What is the value of X - Y?

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Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Practice Pack

OFFON

On March 24, 2014, Brendan and Madison borrow
$18,000 each at a simple interest rate r =
Brendan's bank calculates interest using exact
12%.
interest, while Madison's bank uses the Banker's
Rule (ordinary interest). Let X = amount Brendan
pays back on September 24, 2014, and Y
= amount
Madison pays back on September 24, 2014. What is
the value of X - Y?

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