sokura

May 21st 2009, 08:41 PM

I came across this problem today and cannot figure out how the answer is obtained.

It says:

Sigmund and Karl each borrowed an identical amount from Ludwig at a nominal rate of discount of 5.4% convertible quarterly. Sigmund repays his loan by making payments of $2,000 at the end of each year for six years. Karl makes payments of $3,200 at four equally spaced times T, 2T, 3T, and 4T. Find T. [HINT: you will need to find the interest rate I for a period of length T.]

The answer is supposed to be 1.89171 years.

Does anyone know how to attack this problem? I once received an explanation last year from someone but it didn't make sense to me and now I don't remember what the explanation is.

It says:

Sigmund and Karl each borrowed an identical amount from Ludwig at a nominal rate of discount of 5.4% convertible quarterly. Sigmund repays his loan by making payments of $2,000 at the end of each year for six years. Karl makes payments of $3,200 at four equally spaced times T, 2T, 3T, and 4T. Find T. [HINT: you will need to find the interest rate I for a period of length T.]

The answer is supposed to be 1.89171 years.

Does anyone know how to attack this problem? I once received an explanation last year from someone but it didn't make sense to me and now I don't remember what the explanation is.