To find the rate of interest Jack has to pay, we can use the formula for the Present Value of an Annuity (PVA). Here, Jack has agreed to pay 4 equal half-yearly installments of $7,000 each, with the total cost of repairs being $20,000. We need to find the interest rate that makes the present value of these payments equal to $20,000.

Step 1: Set up the Present Value of an Annuity formula

The formula for the Present Value of an Annuity (PVA) is:

$PVA = P \times \frac{1 - (1 + r)^{-n}}{r}$

Where:

• $PVA$ is the present value of the annuity, which is $20,000.
• $P$ is the amount of each payment, which is $7,000.
• $r$ is the interest rate per period (half-year in this case).
• $n$ is the total number of payments, which is 4.

Step 2: Plug in the known values

$20000 = 7000 \times \frac{1 - (1 + r)^{-4}}{r}$

Step 3: Solve for $r$

We can rearrange the equation to solve for $r$:

$\frac{20000}{7000} = \frac{1 - (1 + r)^{-4}}{r}$

$\frac{20}{7} = \frac{1 - (1 + r)^{-4}}{r}$

$2.8571 = \frac{1 - (1 + r)^{-4}}{r}$

Now, this equation is not easy to solve algebraically for $r$, so we can use numerical methods (like trial and error, or a financial calculator) to approximate the interest rate.

Approximate Solution:

By using trial and error or a financial calculator, we find that the interest rate $r$ is approximately 8% per half-year.

Conclusion:

Jack has to pay an interest rate of approximately 8% per half-year.

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Do you want more details on how to solve this numerically or have any other questions?

Relative Questions:

1. What is the formula for the future value of an annuity?
2. How would the total interest paid change if the number of installments were different?
3. What happens to the interest rate if the payment amounts are increased?
4. Can this method be used to find the interest rate for monthly payments?
5. How would inflation affect the real cost of the repairs?
6. What is the difference between simple interest and compound interest?
7. How does the frequency of compounding affect the total interest paid?
8. What financial tools can be used to calculate interest rates?

Tip:

Using a financial calculator or spreadsheet software like Excel can simplify solving complex annuity and interest rate problems.