1. You invest $1,000 now, at an annual simple interest rate of 8 %. Determine the effective rate of
interest in the fifth year of your investment.(3 marks)
Or 6.06%
1. You invest $1,000 now, at an ann
Chapter 3 Basic Annuities
3.1 An annuity is defined as a series of payments,
usually of equal size, made at periodic(equal) time
intervals.
payment period - length of time between
successive payments
Yellow
1. Find the present value of an annuity which pays $2,500 at the end of each year for 30
years. Assume an effective annual interest rate of 9%.
2. A perpetuity pays $5,000 every year. The effec
Practice for midterm exam
,
1.
If the effective rate of interest on an investment is 6%, what is the nominal rate of
interest compounded monthly?
2. Calculate the nominal annual rate of discount conve
Chapter 3: Basic Annuities
Chapter 3: Basic Annuities
Please read Ch 3.1 to 3.8 from The Theory of Interest.
2 important notes:
1. occurs one payment period BEFORE the 1st payment
3.1
Introduction
Tim
1. Calculate the nominal annual rate of discount convertible semi-annually that is equivalent to a
nominal annual rate of interest of 10%(9%) per year convertible monthly.
Solution:
with
2. A $15,000
Ch 4: More General Annuities
Please read Ch 4.1 to 4.9 from the Theory of Interest.
Ch 4: More General Annuities
Example:
Given i(4) on an annuity with annual payments. Find j (ie. the effective
annua
SOLUTION Midterm fall 2017
1.
(5 marks) In how many years should a single payment of $1000 be made in order to be equivalent to
payments of $400 now and $600 in 5 years, if the effective annual rate o
1. Suppose that the accumulation function for an account is ( ) (
).
Anna invests $500 in this account today. The accumulated value in Annas account will
be $1250 in 12 years. Calculate i.
Suppose tha
University of Alberta
Department of Mathematical and Statistical Sciences
MATH 253 (A1)
Theory of Interest (Financial Mathematics)
Fall 2016
Instructor: Dr. Hafizah Yahya
Office:
CAB 471
E-mail:
hafiz
Ch 4: More General Annuities
Please read Ch 4.1 to 4.9 from the Theory of Interest.
4.1
Introduction
in Chapter 3, annuities were described as having level payments
payable at the same frequency as w
2016-08-19
CHAPTER 1
The Measurement of interest
1.1 Interest may be defined as the compensation
that a borrower of capital pays to a lender of capital
for its use. (Kellison, The Theory of Interest)
Ex. An investor deposits $1,000 today. The annual compound rate of
discount is 6%. What is the accumulated value of the investment at the
end of 10 years?
1.3 Effective rate of interest
Denition. The effective rate of interest in the nth period, in, is the ratio of the
amount of interest earned during, and paid at the end of the period to the amount of
1.8 - Nominal Rates of Interest and Discount
Rates of interest (and discount) in the cases
where interest is paid more frequently than once
per measurement period are called "nominal.
The frequency wi
2/25/2016
3.5 Perpetuities
Infinite period annuity
Basic case: payment of 1 per period,
starting one period from now
(perpetuity-immediate)
Perpetuity Immediate:
payments of 1 are made at the end of
Chapter 1 Part 2
Chapter 1 Part 2
1.4 Simple Interest
Example:
Example of Simple Interest:
Andy deposits $1000 into a bank. The account pays simple
The simplest example of interest is a loan agreement
Ch 5: Amortization Schedules and Sinking Funds
Please read Ch 5.1 to 5.6 from the Theory of Interest.
5.1 Introduction
there are two methods for paying off a loan:
(i) Amortization Method - borrower
Chapter 6: Financial Instruments
Please read Ch 6.1 to 6.4, 6.10 from the Theory of Interest.
6.1
Introduction
- interest theory can be used to evaluate the prices of values of bonds
and equity (commo
Math 253 Practice Midterm II
Last Name: _
First Name: _
STUDENT ID: _
Instructions:
1)
2)
3)
4)
5)
6)
7)
8)
Please put your one card on your desk.
The exam is closed book and no formula sheets are all
Ex. 6.3 A bond pays semiannual coupons at an annual rate of
10% of the nominal value. The annual effective yield-to-maturity is
currently 4% and the price paid per $1,000 par value is $1,404.06.
If th
1.9 Force of Interest and discount (Omit force of discount)
Recall: an annual compound interest is the change in the account value over one year, expressed
as a percentage of the value at the beginnin
1.5 Compound Interest
Under simple interest, the interest is not reinvested to earn
additional interest.
The theory of compound interest handles this problem by
assuming that the interest earned is au
2016-11-04
Chapter 5: Amortization Schedules and Sinking
Funds
5.1 Introduction
There are two methods for paying off a loan:
(i) Amortization Method - borrower makes series of
payments at periodic int
Interest: compensation that a borrower of money pays to a lender for its use
Principal: initial amount of money invested
Accumulated value: total amount of money the borrower pays to the lender after
1.8 Nominal Rate of Interest and Discount Convertible
Definition
An effective rate of interest (discount) is paid once per year at the end (beginning) of the year
A nominal rate of interest (discount)
Math 253 Practice Midterm I
Last Name: _
First Name: _
STUDENT ID: _
1)
2)
3)
4)
5)
6)
Please put your one card on your desk.
The exam is closed book and no formula sheets are allowed.
No communicatio
Chapter 6 Bond Valuation
We will use interest theory to evaluate the prices and
values of bonds given a yield rate,
how a bond is amortized and determine the value of a
bond on a given date after it
5.6 Loans:The Sinking Fund Method is a method
of paying off a loan in which a borrower pays
interest payments throughout the loan period and
then pays the loan in full at the end of the loan
period. T
2.3 Equations of Value
The value at any given point in time, t, will be either a present value or a future
value (often referred to as the time value of money) the time value of
money depends on the c
University of Alberta
Math 253(A1)
Solution quiz 2
Date: October 13, 2017
1. (3 marks) Calculate the nominal annual rate of discount convertible semiannually that is
equivalent to a nominal annual rat
QUIZ 01 SOLUTION
3.Alice deposits X into an account at time 0 which pays an annual effective interest rate of i. Bill
deposits 2X into a different savings account time 0 which pays simple interest at