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Homework 2

# Homework 2 - 204 23 4007 i A P = Using Goal Seek i is found...

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E60, Fall 2007                    Professor Sam Chiue Homework 2 Solution 3.2 Nominal interest rate= % 40 . 11 12 * % 95 . 0 = Annual effective interest rate= % 01 . 12 1 ) 0095 . 1 ( 12 = - 3.10 (a)  % 75 . 0 12 / % 9 =  because payment period=compounding period or equivalently  % 75 . 0 1 ) 12 09 . 0 1 ( 1 = - + (b)  % 267 . 2 1 ) 12 09 . 0 1 ( 3 = - + (c)  % 585 . 4 1 ) 12 09 . 0 1 ( 6 = - + (d)  % 381 . 9 1 ) 12 09 . 0 1 ( 12 = - + 3.19 In part (a) and (c), incorrect interest rate is used. The interest rate per quarter is  % 013 . 2 1 ) 12 08 . 0 1 ( 3 = - + The future value of the first four payments at the end of year 1 would give the annual end-of-year  deposits: A= ) 4 %, 013 . 2 , | ( 500 A F  so part (b) is correct. 3.56 (a)  Monthly payment, A, made to the furniture store satisfies the following equation: 09 . 423 ) 6 %, 1 , | )( 36 %, 1 , | ( 10000 = = A F P A P A (b)  At the end of 26 th  month, there are still 10 payments outstanding. The remaining balance is just the  present value of these payments: 23 . 4007 ) 10 %, 1 , | ( 09 . 423 ) 26 ( = = A P B (c)  The monthly interest rate solves: ) 30

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Unformatted text preview: 204 23 . 4007 i A P = Using Goal Seek, i is found to be 2.98% per month. Nominal rate=2.98*12=35.96% per year Effective annual rate=42.30% 4.1 45 . 165 ) 07458 . 1 ( 100 % 458 . 7 82 . 1 ) 1 ( 1 . 1 7 2 = + = ⇒ = + f f 4.3 % 4894 . 6 40 . 113 ) 2 , , | ( 100 40 . 113 ) 08 . 1 )( 05 . 1 ( 100 = ⇒ = = + + f f P F 4.7 Given i=16%, % 4 = f n Actual Dollars Constant Dollars 1500 1500 ) %, 4 , | ( 1500 = F P 4 2500 2157 ) 4 %, 4 , | ( 2500 = F P 5 3500 2877 ) 5 %, 4 , | ( 3500 = F P 7 4500 3420 ) 7 %, 4 , | ( 4500 = F P 4.10 Inflation free interest rate: % 01 . 5 ) 038 . 1 /( ) 038 . 09 . ( ' = +-= i Present worth of the constant dollar series: 13 . 3545 ) 4 %, 01 . 5 , | ( 1000 = = A P P Annual equal payment in actual dollars: 27 . 1094 ) 4 %, 9 , | ( 13 . 3545 = = P A A...
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• Winter '10
• -1
• Centuries in the future, actual dollars, Professor Sam Chiue, payment period=compounding period, furniture store satisfies, annual end­of­year  deposits

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