The Theory of Interest - Solutions Manual 104 Chapter 91. A: A direct application of formula (9.7) for an investment of Xgives ()()1010101.081.081.32539.1.051.05AXXX⎛⎞===⎜⎟⎝⎠B: A direct application of formula (9.3a) for the same investment of Xgives 1.0811.0285711.05i′+==and the accumulated value is ()101.0285711.32539.BXX==The ratio /1.00.A B=2. Proceeding similarly to Exercise 1 above: ()10 .081010 .0285719.60496.1.0511.71402.sABs====±±±±The ratio /.82.A B=3. Again applying formula (9.7) per dollar of investment ()()551.07.870871.10=so that the loss of purchasing power over the five-year period is 1.87087.129, or 12.9%.−=4. The question is asking for the summation of the “real” payments, which is ()()21515 .03211118,0001.0321.0321.03218,000$211,807 to the nearest dollar.a⎡⎤+++⎢⎥⎣⎦=="5. The last annuity payment is made at time 18t=and the nominal rate of interest is a level 6.3% over the entire period. The “real” rate over the last 12 years is .063.012.0504.11.012irir−−′ ===++
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