midterm2 - Actsc 231 : Test #2 Solution - Spring 2010...

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Unformatted text preview: Actsc 231 : Test #2 Solution - Spring 2010 (Pink) Problem 1: [5 points] Company X needs capital for expansion. It borrows 1,000,000 from company Y for three years at annual effective rate 6%, and another 500,000 for 5 years from company Z at a 5% annual effective rate. At the end of one year, company X makes a 300,000 4-year loan to company W at 7% annual effective rate, i.e. company W borrows 300,000 from company X for 4-year at annual effective rate 7%. What is the annual yield rate that company X earns over the five year period? Solution C = 1 , 500 , 000 , C 1 =- 300 , 00 , C 2 = 0 , C 3 =- 1 , 000 , 000 1 . 06 3 , C 4 = 0 , C 5 = 300 , 000 1 . 07 4- 500 , 000 1 . 05 5 5 X k =0 C k v k = 0 by calculator, y = 5 . 16% Remark: this is almost the same as chapter 2, review problem 4, which I presented in class in the ppt file examples2. 1 2 Problem 2:[10 points] Wang is considering a loan of 10,000 at nominal compounding rate convertible 2 times per year of i (2) = 4%....
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midterm2 - Actsc 231 : Test #2 Solution - Spring 2010...

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