Tutorial 1

Tutorial 1 - 07/08 Semester II THE UNIVERSITY OF HONG KONG...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 07/08 Semester II THE UNIVERSITY OF HONG KONG DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE STAT1802 Financial Mathematics Tutorial 1 1 Review 1.1 Basic Definition Interest: Compensation that a borrower of capital pays to a lender of capital for its use. Principal: Initial amount of money (capital) borrowed or invested. Period: Unit in which time is measured. 1.2 Formulas 1. The amount function A ( t ) A ( t ) = k * a ( t ) and A (0) = k 2. The interest earned during the n-th period I n = A ( n )- A ( n- 1) for n ≥ 1 3. Effective rate of interest i n = A ( n )- A ( n- 1) A ( n- 1) = I n A ( n- 1) = a ( n )- a ( n- 1) a ( n- 1) 4. Effective rate of discount d n = A ( n )- A ( n- 1) A ( n ) = I n A ( n ) = a ( n )- a ( n- 1) a ( n ) 1 5. Force of interest δ t = A ( t ) A ( t ) = a ( t ) a ( t ) e R t δ r dr = a ( t ) 1.3 Simple basis 1. Simple interest basis a ( t ) = 1 + it 2. Effective rates i n = i 1 + i ( n- 1) d n = i 1 + in 3. Determining time periods Interest earned = P * i *...
View Full Document

This note was uploaded on 04/17/2011 for the course STAT 1802 taught by Professor Dr.k.c.yuen during the Spring '08 term at HKU.

Page1 / 4

Tutorial 1 - 07/08 Semester II THE UNIVERSITY OF HONG KONG...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online