ISE2014_Class9

ISE2014_Class9 - Class 9 Interest Rates ISE 2014 Click to...

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Click to edit Master subtitle style Class 9 – Interest Rates ISE 2014 Fall 2010
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Announcements Alternate Exam time and location set: 216 Randolph 12:30 – 2:00 If you have an official conflict with the normal exam time 1. Respond to the email I sent of the weekend stating the conflict 2. Answer whether you can make the alternate time or have another conflict
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Your Toolbox Cash Flow Diagrams P/G F/P A/G P/F P/A
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2 Topics for Today Multiple interest rates Nominal and Effective Interest Rates These topics cover the last 3 problems on your homework
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Multiple Interest Rates Multiple interest rates refers to rates that change over time We can already deal with these problems using our tools, we just need to apply them correctly
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Multiple Interest Rates So what do we mean by multiple interest rates? Consider the following problem… You invest $1,000 in a fund that will earn you 6% return Five years later you find a better investment opportunity and move all the money to a new fund that will earn 8% return. At the end of the 10th year you take your money out. How much money will you have?
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Multiple Interest Rates As always we’ll start with a cash flow diagram Label the period over which each interest rate applies clearly Remember that our tic marks represent the end of the labeled year
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Strategy Our tools are designed for only one interest rate Therefore, we’ll need to use a new tool each time the interest rate changes
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Solution X10 = $1,000(F/P,6%,5)(F/P,8%,5) X10 = $1,000(1.3382)(1.4693) X10 = $1,966.22
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Notes You won’t need to handle complex problems, such as an annuity that crosses
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ISE2014_Class9 - Class 9 Interest Rates ISE 2014 Click to...

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