Exam1_Fall2009

Exam1_Fall2009 - Name: ID 1. You invest $20, 000 now in a...

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Unformatted text preview: Name: ID 1. You invest $20, 000 now in a bank that offers a nominal rate of 5% convertible monthly. How long will it take for you to earn $100, 000? 2. You loan a friend $800 in return for $1, 400 to be given back in 6 years. At what rate of simple interest does this imply? 3. Let a (t) = 1+it2 where i is considered a fixed interest rate. Find (t). For extra credit, make an observation about the limiting behavior of (t) and what it means to an investor. 4. Put i(3) in terms of d(5). 5. On January 1, 2009 you have $1, 000 in a bank account. You invest an additional $700 on June 1, 2009, and $900 on June 1, 2010. You withdraw $350 on January 1, 2010. Finally, on January 1, 2011 you have $3, 500 in the account. Approximate the annual yield rate using the method we developing by assuming simple interest. For bonus points, approximate the yield rate using the guess and check method assuming compound interest. 6. Graduate Show in clear steps d3 (1-d)2 = (i-d)2 1-v 7. Graduate Find the level effective rate of interest over a threeyear period which is equivalent to an effective rate of discount of 8 percent the first year, 5 percent continuous interest the second year, and 9 percent interest convertible monthly the third year. 8. Bonus (a) What food/candy item would I be most upset if deprived of? (b) Recall the problem where we knew the variances of n random returns. What was the optimal investment strategy? Show what the optimal strategy reduces to under the assumption that all variances are equal. ...
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This note was uploaded on 02/28/2012 for the course AMS 318 taught by Professor Timknapik during the Fall '10 term at SUNY Stony Brook.

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Exam1_Fall2009 - Name: ID 1. You invest $20, 000 now in a...

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