Section2.456

# Section2.456 - Fractional Period of Time (section 2.4) The...

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Fractional Period of Time (section 2.4) The formulas P = S (1+ i ) −n S = P (1+ i ) n assume n is an integer What do you do when n is a fraction? Two Methods To Handle These Cases 1. Exact Method In this method, you use the fractional value of n directly in the calculations

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Example 2.4.1 Determine the accumulated value of \$10,000 over 5 years and 7 months if j 2 = 10%. Use the exact method. Solution to 2.4.1
2. Practical Method In practice, the exact method is rarely used instead, compound interest is used for the full integer number of interest periods while simple interest is used for the fractional part of an interest period

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Example 2.4.2 In example 2.4.1, calculate the answer using the practical method. Solution to 2.4.2
Note When you are discounting using the practical method, always use the accumulation factor for the fractional part of an interest period (i.e. the simple interest part) do not discount using simple interest for the fractional interest period This means when discounting using the practical method, take your fractional value of n , round UP to the next integer discount using compound interest and

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

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Section2.456 - Fractional Period of Time (section 2.4) The...

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