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Finance Lecture _1

# Finance Lecture _1 - MAT 183 Math of Finance Lecture#1 Nov...

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MAT 183 Math of Finance Lecture #1 Nov. 18/19, 2009 1 Mathematics of finance Lecture #1 § 10.1 and § 10.2 You invest \$1,000 at 6% compounded monthly for one year. Interest rate is always reported as an annual rate or nominal rate , r . Periodic rate is the annual rate divided by c , the number of periods per year: i = r c principal + interest: F = (1 + i ) P Interest compounded n times: F = (1 + i ) n P Variations: invest for 4.5 years; compound weekly, daily. Present Value: P = 1 (1+ i ) n F Work problems 3, 5, 6, 16 (page 477) Simple interest s s = yr , (the principal is invested for y years.) Consider \$1000 at 6% simple interest for 8 months, for 4.5 years E ff ective rate e [The equivalent simple interest for a one-year investment.] 1 + e = (1 + i ) c = (1 + r c ) c where i = r c is the periodic rate, r is the annual or nominal rate and c is the number of compounding periods per year. Compute the e ff ective rate for \$1000 at 6% com- pounded monthly.

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2 MAT 183 Math of Finance Lecture #1 Nov. 18/19, 2009 “Finance Formulas on the TI84” has been posted on Blackboard. Work problems 32, 35, 36, 50, 51, 53 (pg 478-9) An annuity is a sequence of regular payments called the rent and denoted by R ; the payment periods and the compounding periods are the same
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Finance Lecture _1 - MAT 183 Math of Finance Lecture#1 Nov...

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