ct010s04 - UNSW ACTL1001 Actuarial Studies and Commerce...

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Unformatted text preview: UNSW ACTL1001 Actuarial Studies and Commerce Solutions to Tutorial Exercises 4 Exercise 1 The nominal rate is j (4) for quarterly compounding. We have (1 + j ) = 1 + j (4) 4 4 so that j (4) = 4 × h (1 + j ) 1 4- 1 i = 4 × h (1 . 055) 1 4- 1 i = 0 . 0539 or 5.39% p.a. (nominal). (reasonableness check - should be a bit less than 5.5% allowing for interest on interest each quarter). Exercise 2 We have, assuming 52 weeks in a year (there are about 52.18= 365 . 25 7 actually), j = 1 + j (52) 52 52- 1 = 1 + . 05 52 52- 1 = 0 . 051246 or 5.125% (effective). (reasonableness check - greater than 5% nominal rate). Exercise 3 If you pay interest monthly at the same nominal rate then the effective rate is higher than if you pay interest quarterly since you pay more interest on interest when you pay the same nominal interest at a more fre- quent rate. Thus you would prefer quarterly. We can confirm this by calcu- lating the effective p.a. rates for these two alternatives....
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This note was uploaded on 06/12/2011 for the course ASB 1001,2522, taught by Professor Nicole during the One '09 term at University of New South Wales.

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ct010s04 - UNSW ACTL1001 Actuarial Studies and Commerce...

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