Chapter 6 lecture

Compounding 19 chapter 30 data tables an automated way

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

This document was uploaded on 02/09/2014.

Ask a homework question - tutors are online