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Chapter 6 lecture

# Compounding 19 chapter 30 data tables an automated way

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Unformatted text preview: to calculate EAIR: End − year balance EAIR = −1 Initial balance n r EAIR = 1 + − 1, n where n = # of compounding periods per year r = nominal rate 18 Compounding period < Compounding year year – What is the EAIR of 5% annual rate w/ monthly What compounding? compounding? 19 Chapter 30: Data Tables • An automated way to do sensitivity analysis • See the simple example on p.841-48 20 Chapter 30: Data Tables – First mark the area indicate, then use “Table” First command under “Data” menu: command 21 Chapter 30: Data Tables – This is a one-dimensional data table – We want to vary the interest rate by “inputting” the values We in column A in place of cell B2 in • Leaving row input cell blank, point column input cell to the Leaving original interest rate reference in B2 and hit OK original 22 Chapter 30: Data Tables – See p. 843 on “variable in column” vs. See “variable in row” “variable – These tables will dynamically change when These the original equations are altered the – The table is set up as an entity and parts of The it cannot be altered independently it 23 Two-dimensional tables – The previous example with varying number of The years and interest rate years 24 Two-dimensional tables 25 Calculating the Cost of a Mortgage Calculating – using Data Table using Reference: Reference: • File: OtherPracticeProblems_Chp6.xls File: • Worksheet: “MortgageProblem” We have done the same problem earlier. However, we want to learn more features. 26 EAIR & compounding EAIR frequency frequency – Using “Table” function, create a table that Using shows the EAIR of 15% annual rate with annual, semi-annual, quarterly, monthly, weekly, and daily compounding weekly, – Now create another table that does the Now same and shows the effect of different annual rates in columns annual 27 Continuous Compounding n r EAIR = 1 + − 1 n – When n approaches infinity, EAIR When approaches er – 1 approaches FV = PV (1 + r ) FV = PVe rT n Here, r = annual rate and T is in year 28 Continuous Compounding – Compare FV of \$100 with annual, semi-annual, Compare monthly, and continuous compounding after one year with 10% annual rate 29 Lease vs. Bank Loan • Try Problem 14 in the class 30 Recommended Recommended Problems Problems • Chapter 6: 3, 9, 11, 12, 13, 14, 16, 17 31...
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