Section2.78-3.12

# Section2.78-3.12 - Compound Interest at Changing Interest...

This preview shows pages 1–7. Sign up to view the full content.

Compound Interest at Changing Interest Rates (section 2.7) In all examples/exercises so far, the interest rate was assumed to be constant throughout the term of the investment frequently, however, the interest rate changes over the term of a loan or investment to handle situations where the rate changes, we simply treat the situation as if it were two (or more) compound interest problems

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Example 2.7.1 A person invests \$1000 today in a fund earning j 2 = 8% for the first 18 months and j 2 = 10% thereafter. How much has been accumulated at the end of 4 years? Solution 2.7.1
Note An investor usually wishes to know how much money he/she has at the end of the term of an investment, AND what annual rate of return, j , they earned each year on the investment if interest rates changed over the term

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Back to Example 2.7.1 What rate of return, j , did the investor earn over the 4-year period? Solution
Example 2.7.2 The 1994 Canada Savings Bond issue was the first time these bonds had offered increasing rates of interest: 5.75%, 6.75%, 7.5%, 7.75% and 8.0% over the first 5-years. What effective rate of interest would you earn over these 5 years? Solution to 2.7.2

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
How much do you need to invest today in order to have \$8000 in 4 years times if the interest rate is j 12 = 9% for the first 1.75 years, j 4 = 9% for the next 0.75 years, j 6 = 9% for the last 1.5 years? Solution to 2.7.3
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 04/14/2010 for the course ACSCI 2053 taught by Professor Kopp during the Spring '09 term at UWO.

### Page1 / 29

Section2.78-3.12 - Compound Interest at Changing Interest...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online