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PS 6 - Nominal and Effective, Continuous Compounding

PS 6 - Nominal and Effective, Continuous Compounding - a...

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IE 150 Problem Set 6 Nominal and Effective Interest Rates, Continuous Compounding Instructions:  Write/Type/Print your answers on yellow pad or bond paper (NO A4’s). Use a different sheet per  problem.  Use phrases  to describe what you are doing. Do not present it as just a series of equations and  numbers.  Label each step. Ex: “Step 1: Set-up the Total Revenue Equation”, “Step 4: Solve for the NPV”.  Box the final answers.  Use clear formatting: Indent at each step. Show your answers in just 1 column. (The problem set  will be read from top to bottom, and not top bottom diagonal right bottom.) Problem 1:  Is an interest rate at 1% per month equivalent to an interest rate of 12% per year? If you invested PhP  1,000,000 what will the difference be in: 
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Unformatted text preview: a) One year PhP 6,800 b) 5 years PhP 58,994 c) 10 years PhP 211,417 d) 20 years PhP 1,377,498 Problem 2: Annual deposits are made at 100,000 per year for 3 years at a fund compounding quarterly. What is the value of the fund in 10 years, if the nominal interest rate is at 16%? FW @ 10 = 1,241,701.57 FW @ 10 = 1,061,065.35 Problem 3: The cashflows of a particular investment are as follows: Month Amount Month Amount-20,000 12 2,500 3 2,500 13 2,500 5 2,500 16 2,500 8 2,500 20 2,500 10 2,500 30 2,500 Compute for the NPV at 10% per year, compounding semi-annually. NPV = -100.6 Problem 4: Give one practical application of continuous compounding. This is for large enterprises which have quick inflows and outflows (multiple times in a day)....
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