Chapter 1 Simple Interest and Discount
Simple Interest (section 1.1)
In any financial transaction, there are two
parties:
Interest is calculated on the original principal
only during the whole term of
Compound Interest at Changing Interest Rates
(section 2.7)
In all examples/exercises so far, the interest rate was
assumed to be constant throughout the term of the
investment
frequently, however, the
Determining the Term of an Annuity
(section 3.5)
Given: S or A, R, i
A couple wishes to accumulate $10,000 by depositing
$700 at the end of each quarter in a fund earning j4 = 6%.
How many deposits mu
Callable Bonds (section 6.4)
In General For bonds callable at par
Callable bonds are bonds that a bond issuer can pay
back before the redemption date
1
If i < r (bond sells at a premium), use the
earl
Price of a Bond Between Bond Interest Dates (section
6.5)
So far we have been calculating the price of a bond
assuming the bond was purchased on a bond coupon
date
(Or purchased on the date of issue,
Determining the Yield Rate (section 6.6)
So far, we have been calculating the price of a bond
in situations where the yield rate has been given
Example 6.6.2
A $1000 bond is due in 10 years. It is red
Perpetuities (section 4.3)
A perpetuity is an annuity where the payments begin
on a fixed date and continue forever
since payments continue forever, it is
meaningless to calculate accumulated values
T
Chapter 6 Bonds
Introduction (section 6.1)
When a corporation or government needs a large sum
of money for a long period of time, they can issue
bonds
the bonds can be sold to a large number of
invest
Chapter 10 Life Annuities
Review Interest Only Annuities
(section 10.1)
1.
Accumulating/Discounting Single Sums
S = a.v. of a single sum of money
A = p.v. of a single sum of money
S = A (1 + i )n
A =
Chapter 7 Business Decisions, Capital Budgeting
and Depreciation
Net Present Value (section 7.1)
Businesses are frequently faced with the problem of
deciding whether an investment or business venture
Chapter 5 Repaying a Debt
How the Above Table Works
Amortization of a Debt (section 5.1)
1.
Ik = i (Bk1)
Interest bearing loans are often paid back by means
of a series of equal payments at equal time
Chapter 8 - Fixed Income Investments
Introduction (section 8.1)
An investor needs to understand the potential capital
gain or loss for an investment and the effect it has on
the rate of return for the
Chapter 4 General and Other Annuities
General Annuities (section 4.1)
General annuities are annuities (either
ordinary or due) where the interest period
and the payment period are NOT the same
we wil
Chapter 1 Simple Interest and Simple Discount
1.2 Discounted Value at Simple Interest
Recall that:
Promissory note
A short term contract, generally less than 1 year
Requires the issuer (maker) of t
Chapter 1 Simple Interest and Simple Discount
1.1 Accumulated Value at Simple Interest
Recall that:
We say that an investment earns simple interest at
rate r if interest is paid on the original prin
Chapter 2 Compound Interest
Fundamental Compound Interest Formula (section
2.1)
Compound Interest
The interest earned in any given period of time is
added to the principal and it thereafter earns inte
Other Simple Annuities (section 3.4)
(I) Annuity Due
Note
If the periodic payment is $R, then
An annuity-due is an annuity where the periodic
payments are due at the beginning of each payment
interval
Determining the Rate and Time (2.5)
(I)
Determining the Rate
Given: P, S, n
Determine: i
Start with:
Example 2.5.4
If you invest $1000 today, how much money do you think
you will have in 5-years time?
Chapter 1 Simple Interest and Discount
Simple Interest (section 1.1)
In any financial transaction, there are
two parties:
The lender and the borrower
Consider the following transaction:
Person A lends
Chapter 2 Compound Interest
Fundamental Compound Interest Formula
(section 2.1)
Compound Interest
The interest earned in any given period of
time is added to the principal and it
thereafter earns inte
Partial Payments (section 1.4)
When a person borrows money, they can
pay back the loan, with interest, in one of
two ways:
1. With a single payment on the due date
2. With a series of partial payments
Introduction to risk management
Producer-commodity market-buyer
For the producer, the risk commodity
makes its profit move positively with the
price of the commodity in the market,
hence, it called an