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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 annuitydue 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.
 Spring '08
 Hubscher
 Math

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