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Unformatted text preview: 1 Day 27 Lecture 22 NonLinear Models, The Final Chapter Stuff I should have just stated instead of Derived Example Version If a Bank offers 3% APR , and the bank compounds twice a year, then the interest payment each compound period is 1.5% of the current amount of money in the account. Theoretical Version If a Bank offers APR , and the bank compounds times a year, then the interest payment each compound period is of the current amount in the account The relationship between the Annual Percentage Rate, , and the Compound Period Interest rate is 2 1 2 Wheres my money? This is actually a good thing since later installments will actually pay interest on previously gained interest before the year is up. Using the Generic Compound interest formula, we can derive a formula for the amount in terms of ___________. Suppose years have passed, then 3 11 # of Comp. Per. after Investing 1 2 = 1 Yr 3 4 = 2 Yr Amount in the Account Interest paid at the E.O.C.P # of Comp. Per. after Investing 1 2 = 1 Yr 3 4 = 2 Yr Amount in the Account 200 Interest paid at the E.O.C.P # of Comp. Per. after Investing 1 2 = 1 Yr 3 4 = 2 Yr Amount in the Account 200 203 Interest paid at the E.O.C.P 3 # of Comp. Per. after Investing 1 2 = 1 Yr 3 4 = 2 Yr Amount in the Account 200 203 206.04 Interest paid at the E.O.C.P 3 3.04 # of Comp. Per. after Investing 1 2 = 1 Yr 3 4 = 2 Yr Amount in the Account 200 203 206.04 209.13 Interest paid at the E.O.C.P 3 3.04 3.09 # of Comp. Per. after Investing 1 2 = 1 Yr 3 4 = 2 Yr Amount in the Account 200 203 206.04 209.13 212.27 Interest paid at the E.O.C.P 3 3.04 3.09 3.13 # of Comp. Per. after Investing 1 2 = 1 Yr 3 4 = 2 Yr Amount in the Account 200 203 206.04 209.13 212.27 Interest paid at the E.O.C.P 3 3.04 3.09 3.13 3.18 One is never enough What if the banks wants to offer compounding more than twice a year? Theres a formula for that! Using the generic Compound Interest formula we see that represent the amount in an account years after opening if interest is compounded times per year. 4 4 3 So many Options to Choose from, part 1 Banks can offer Compounding Annually: SemiAnnually: Bimonthly 5 # of Years since Investing 1 2 3 4 Amount in the Account 200 206 212.18 218.55 225.10 Interest paid at the E.O.Y 6 6.18 6.37 6.55 # of Years since Investing 1...
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This note was uploaded on 07/23/2011 for the course MGF 1107 taught by Professor Staff during the Fall '08 term at University of Florida.
 Fall '08
 Staff

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