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EXAMPLE 4
Money is invested for five years in a savings account earning 7% effective. If the rate of inflation
is 10% find the percentage of purchasing power lost during the period of the investment.
An equation of value involves - PV, FV, Interes
LECTURE 5
EXAMPLE 1
An account pays $1,500 at the end of 10 years at 5% per annum convertible monthly.
How much was deposited initially?
EXAMPLE 2
In return for a promise to receive $1,000 at the end of 5 years a person agrees to pay $100
at once, $400 at
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3.2 Annuities Immediate
3.3 Annuities Due
Annuity: Series of payments made at equal interval of time (original annuity)
We only consider annuity certain payments - made for a fixed, known period of time called
the TERM.
Contingent Annuities - paym
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- Outstanding principal
- Unpaid balance
- Remaining loan indebtedness
Suppose a loan of amount L to be repaid at the end of n time periods by payments at the end
of each period. Assume these payments are LEVEL except possibly for final payment.
P
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4.4 Annuities with payment less frequent than each interest period and payments in AP
4.5 Annuities with payments more frequent than each interest period and payments in AP
4.6 Continuously paying annuities
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EXAMPLE 2 (Text, p206, Q2)
It is
Page 1
A savings account start with $1,000 and has a level annual effective discount rate of 6.4%. Find the
accumulated value at the end of five years.
Latisha wishes to obtain $4,000 to pay her college tuition now. She qualifies for a loan with a level
a
LECTURE 12
EXAMPLE 1
Find the accumulated value 18 years after the first payment is made of an annuity on which there are 8
payments of $2,000 each made at two-year intervals. The nominal rate of interest conver
MATH 4410
LECTURE 6
EXAMPLE 1
An investor makes a single deposit of $10,000 into Fund A for 10 years which earns a 6% effective rate of
interest payable directly to the investor each year. During the first 5 ye
MATH4410
LECTURE2
1.6,1.7,1.8
EXAMPLE1
Assumethesameamountfunctionsasinexample1,Lecture1.
Find d = d1
and
d 5 (theeffectivediscountratesforthefirstandfifthtimeperiods)
EXAMPLE2
Howmuchmustbeinvestedataneffectiveinterestrateof5%perannumtoaccumulateto$100at
MATH 4410
LECTURE 3
EXAMPLE 1 (Text, p66, Q2)
Latisha wishes to obtain $4,000 to pay her college tuition now. She qualifies for a loan with a level
annual effective discount rate of 3.5%.
(a) How much will s
LECTURE 4
EXAMPLES
EXAMPLE 1
Find the accumulated value of $500 invested for 5 years if the force of interest is 5%.
EXAMPLE 2 (TEXT, Ch 1, Review Problem 1)
Find the accumulated value of $6,208 at
LECTURE 22 EXAMPLES
EXAMPLE 1
A company owes $100 to be paid at times 2, 4, and 6. The company plans to meet the
obligation with an investment program that produces asset cash flows of A1 at time 1 and
A5 at time 5. The effective rate of interest is 10%
(
LECTURE 21 EXAMPLES
EXAMPLE 1 (MATCHING WITH ZERO COUPON BONDS)
Several years ago ABC corporation entered into a 10-year lease agreement under which
ABC committed to make 10 annual lease payments. The first payment was $840,000 and
each payment thereafter
LECTURE 20
EXAMPLE 1
A $100 par-value 10% preferred stock with quarterly dividends is bought to yield
8% convertible quarterly into perpetuity. However, the preferred stock is actually
called at the end of 10 year
LECTURE 13 EXAMPLES
EXAMPLE 1
A perpetuity has payments at the end of each four year period. The first payment at the end of four
years is 1. Each subsequent payment is 5 more than the previous payment. It
EXAMPLE 1
A $1,0000 par value 20 year bond with coupons at 8% payable semi-annually
has a redemption value of $1100 and is bought to yield 6% convertible semi-annually.
Find the purchase price.
EXAMPLE 2
You own a $10,000 face value bond whose redemption
LECTURE 19 EXAMPLES
EXAMPLE 1 (Text, 5.4,Q2)
A loan of $12,500 is made at an effective interest rate of 8.5%.
Payments are made at the end of each interest period. Each payment
equals twice the interest due unt
LECTURE 18 EXAMPLES
EXAMPLE 1
A 10-year bond with semi-annual coupons is bought at a discount to yield 9% semiannually. If the amount for accumulation of discount in the next-to-last coupon is $8,
find the total amount for accumulation of discount during