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Unformatted text preview: Example 4.1 • Example 4.1: Suppose an annuity pays $1000 every 5 years for 35 years. The rate of interest is 5% per year effective. Find the present value and the accumulation value at the expiration date for a) payments in advance; b) payments in arrear. C. Weng ([email protected]) – p. 2/1 3 Example 4.2 • Example 4.2: Suppose an annuity pays $100 every month for 15 years. The interest rate is 5% per year effective. Find the present value of the annuity for a) payments in advance b) payments in arrear C. Weng ([email protected]) – p. 4/1 3 Continuous constant annuities • Consider an annuity of $1 per period payable continuously for n periods. Assume the effective interest rate is i per period. • Present value is denoted by ¯ a n ⌉ . • Formulae: ¯ a n ⌉ = 1 v n δ , where δ is the equivalent constant force of interest corresponding to the interest rate i and hence δ = ln(1 + i ) ....
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 Spring '11
 Weng
 C. Weng, [email protected])

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