Chapter One Practice
Basic Review Problems
1. Let the annual interest rate be 5% and the time interval be [3,4]. Find i4 for
(a) annual compound interest and (b) simple interest.
2. (a) Given i(2) = 5%, find t
Lecture 4
Chapter 2 Annuities
Annuity: the term used to describe a series of periodic payments. A unit annuity is
one for which regular payment is 1.
An annuity is immediate if payments are made at the end of
Chapter 1 Interest Rates and Time Value of Money
Interest theory deals with the time value of money.
Whats the difference between compound interest and simple interest?
Example
Suppose you invest 100 at 12%
Lecture 2
Interest Rate vs. Discount Rate
Investments can be structured in many ways. Consider an investor who would like
to earn 12% for one year. Two common approaches are:
a) Invest a given sum at the beginnin
Lecture 3
Solving for PV, FV, n, and i With Compound Interest
Time value of money calculations can be done easily with the BAII Plus.
Example 1
You want to have 80,000 in a college fund in 18 years. How
Lecture 7
Chapter 3 Loan Repayment
Now we understand how to find the payment on a level payment loan. However
there are loans whose payments are not level, and there are ways of repaying loans
that we have n
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Lecture 6
Annuities with Terms in Geometric Progression
Consider the sequence of payment 1, 1.05, 1.1025 = (1.05)2, made at the end of the
period.
Suppose that we wish to find the present val