October_2nd_Lecture_3000

# October_2nd_Lecture_3000 - CEE 3000 October 2, 2007 F = P(1...

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October 2, 2007 F = P(1 + i) n Where (1 + i) n compound amount factor i interest rate P = F/(1 + i) n Where 1/(1 + i) n present worth factor i discounting factor Simple Interest Rate P n = P + P*i*n Effective Interest Rate - important concept- Ex. Effective annual interest rate that is the same as 1.5% per month if P = %10000? HINT= always draw the picture -I can’t get the picture on here to look right so I’m also, photocopying this set and putting them in your folder. F = 10000( 2 + 0.015)12 = \$ 11, 956.18 \$11,956.18 - \$10,000 = 1956.18 The effective interest rate i eff = 1956.18/10000 = 0.1956 or 19.56% i eff = (1 + i ) n – 1 * for going from a smaller time rate to a larger time rate = ( 1 + 0.015) 12 -1 = 19.56% Ex. i eff over 5 years of a nominal interest rate of 6% i eff = ( 1 + 0.06) 5 – 1 Ex. If you receive 4% semi-annually what is the effective annual interest rate? i

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## This note was uploaded on 06/07/2009 for the course CEE 3000 taught by Professor Meyer during the Fall '07 term at Georgia Institute of Technology.

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October_2nd_Lecture_3000 - CEE 3000 October 2, 2007 F = P(1...

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