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
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
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?
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
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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