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Chapter012

# Chapter012 - The Theory of Interest Solutions Manual...

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The Theory of Interest - Solutions Manual 141 Chapter 12 1. ( ) [ ] ( ) [ ] ( ) 1 1 1 1 1 E E 1 E 1 from independence 1 . n t t n t t n a n i i i = = = Π + = Π + = + 2. ( ) [ ] ( ) 1 1 1 1 1 1 1 E E 1 E 1 from independence 1 . n t s n t s n t s t s n t n i t a i i i a = = = = = = Σ Π + = Σ Π + = Σ + = 3. ( a ) ( ) ( ) [ ] Year 1: 8% given. Year 2: .5 .07 .09 .08, or 8%. Year 3: .25 .06 2 .08 .10 .08, or 8%. + = + + = ( b ) ( ) ( ) ( ) ( ) ( ) 2 2 2 2 2 2 2 Year 1: 0, no variance. Year 2: .5 .07 .08 .09 .08 .0001 .0001 .01. Year 3: .25 .06 .08 2 .08 .08 .10 .08 .0002 σ σ σ σ = = + = = = = + + = .0002 .01 2 σ = = ( c ) ( )( )( ) 1000 1.08 1.09 1.10 \$1294.92. = ( d ) ( )( )( ) 1000 1.08 1.07 1.06 \$1224.94. = ( e ) ( ) 3 1000 1.08 \$1259.71. = ( f ) ( ) ( )( )( ) ( )( )( ) [ ( )( )( ) ( )( )( ) ] [ ] .25 1000 1.08 1.09 1.10 1.08 1.09 1.08 1.08 1.07 1.08 1.08 1.07 1.06 .25 1294.92 1271.38 1248.05 1224.94 \$1259.82 + + + = + + + =

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