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ACTSC 231 Tutorial06

ACTSC 231 Tutorial06 - Problem Set 6 ACTSC 231 Mathematics...

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Problem Set 6: ACTSC 231 Mathematics of Finance, Fall 2010 Q1. Carefully describe what each of the following symbols measures and calculate their values to the nearest 0.0001: (a) 200 a (4) 10 6% ; (b) 1200¨ s (12) 20 4% . Q2. Compare these four symbols ¨ a n i , ¨ a ( m ) n i , a ( m ) n i and a n i by calculating their values at n = 48, m = 12 and i = 5%. Q3. A loan of 20,000 is to be repaid in 20 years using the sinking fund method. You are told that the sinking fund payment made at the end of each year is 744.31, and that the annual effective interest rate i such that the amortization method based on i has an annual payment equal to the total annual payment in the sinking fund method is 8.7%. Determine the annual effective interest rate i charged on the loan. Q4. For a loan of $1,000, level interest payments are made at the end of each year for 10 years with an annual effective interest rate of 5%, and the principal amount is repaid at the end of 10 years. At the end of each year, the borrower makes level annual payment to a sinking fund that earns interest at an annual effective rate of 4%. At the end of
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