ica1s - Name (Last/family name first): Math 210 Theory of...

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Unformatted text preview: Name (Last/family name first): Math 210 Theory of Interest Instructor: Ryan Hubscher Spring, 2008 In Class Assignment # 1 (max. points = 4) Thursday February 7, 2008 This assignment is open note/open book, and you may work together in groups of no more then 4. However, each student must hand in his/her own answer sheet. No credit will be given without supporting work. 1. (1 point) An annuity-due pays 100 at the beginning of each year forever. The effective annual rate of interest is 25%. What is the present value of the annuity? Solution 1: d= i 1+i .25 = 1.25 = .2 1 d 100 a = 100 = 500 Solution 2: 100 a = 100(1 + a ) = 100 1 + = 500 2. (3 points) Alexander leaves an estate of $400,000. At the end of each year, interest on the estate is paid to Bert for the first 5 years, to Carl for the second 5 years, and to the Handout Foundation each year thereafter. Find the present value of the payments to Bert, Carl, and the Handout Foundation. The interest rate is such that v 5 = 1/2. P VBert = 400, 000i a5 = 400, 000(1 - v 5 ) = 200, 000 P VCarl = 400, 000i a5 v 5 = 400, 000(1 - v 5 )v 5 = 100, 000 P VHandout = 400, 000i a v 10 = 400, 000i = 100, 000 1 i v 10 1 i 1 ...
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This note was uploaded on 04/08/2008 for the course MATH 210 taught by Professor Hubscher during the Spring '08 term at University of Illinois at Urbana–Champaign.

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