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    F Math Asgn3 Ans

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    F Math Asgn3 Ans

    Uploaded by

    chensiqi5529
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    f_math_asgn3_ans

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    2 views4 pages

    F Math Asgn3 Ans

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    Answers Assigment 3

    2.3
    2. The monthly interest rate is

    i(12) 0.18
    j= = = 0.015.
    12 12
    Using the end of the third month as the comparison date

    X = 1000(1 + j)3 − 200(1 + j)2 − (1 + j)


    = 535.13.

    3. We have
    200ν 5 + 500ν 10 = 400.94ν 5 .
    ν 10 = 0.40188ν 5 .
    Then
    ν 5 = 0.40188 or (1 + i)5 = 2.4883.

    P = 100(1 + i)10 + 120(1 + j)5


    = 917.76.

    5. (a) At time t = 10 , we have, with i = 0.05,

    X = 100(1 + 10i) + 100(1 + 5i)


    = 275.

    (b) At time t = 15 , we have, with i = 0.05,

    X(1 + 5i) = 100(1 + 15i) + 100(1 + 10i)


    X = 260.

    2.4
    7. The given equation of value is

    3000 + 2000ν 2 = 5000ν 2 + 5000ν n+5


    2
    3000 + 2000(1 − d) = 5000(1 − d)n [1 + (1 − d)5 ].

    Since d = 0.06, simplifying, we have

    4746.20 = 8669.53(0.94)n

    n = 9.66.
    11. Use time t = 10 as the comparison date

    A : 10[1 + (10)(0.11)] + 30[1 + (5)(0.11)] = 67.5


    B : 10[(1.0915)10−n + 30(1.0915)10−2n = 67.5

    10ν n + 30ν 2n = 28.12331


    which gives the quadratic

    ν 2n + 0.33333ν n − 0.93744 = 0

    ν n = 0.81579 ⇒ n = 2.33.

    2.5

    14. The given equation of value is

    300(1 + i)2 + 200(1 + i) + 100 = 700.

    Rejecting the negative root,


    √
    19 − 4
    i=
    3

    2.6

    19. (a) 1340 days.


    (b) 1321 days.

    20. (a)  
    62
    I = (10000)(0.06) = 101.92.
    365

    (b)  
    60
    I = (10000)(0.06) = 100.
    360

    (c)  
    62
    I = (10000)(0.06) = 10333.
    360

    2.7

    22. (a)
    (100 − 96)/100 = 0.04 ⇒ d(4) = 4(0.04) = 0.16.

    (b)
    96(1 + i)0.25 = 100 ⇒ i = 0.1774.
    24. The monthly interest rates are:
    0.054 0.054 − 0.18
    y1 = = 0.0045; y2 = = 0.003.
    12 12
    The 24-month CD is redeemed four months early, so the student will earn
    16 months at 0.0045 and 4 months at 0.003. The answer is

    5000(1.0045)16 (1.003)4 = 5437.17.

    27. This exercise is asking for the combination of CD durations that will
    maximize the accumulated value over six years. All interest rates are
    convertible semiannually. Various combinations are analyzed below:

    4 − yr./2 − yr. : 1000(1.04)8 (1.03)4 = 1540.34


    3 − yr./3 − yr. : 1000(1.035)12 = 1511.08

    All other accumulations involving shorter-term CD’s are obviously inferior.


    The maximum value is 1540.34.

    Miscellaneous Problems
    28. Let the purchase price be R. The customer has two options:
    One: Pay 0.7R immediately.
    Two: Pay 0.75R in two months.
    The customer will be indifferent if these two present values are equal. We
    have
    (1 − 0.01X)R = 0.9R(1.08)−1/6 ⇒ X = 0.1115.

    29. Let the purchase price be R. The retailer has two options:
    One: Pay 0.9R in two months.
    Two: Pay (1 − 0.01X)R immediately.
    The customer will be indifferent if these two present values are equal. We
    have
    0.7R = 0.75R(1 + i)−0.5 ⇒ i = 0.148.

    30. At time 5 years


    1000(1 + i/2)10 = X.
    At time 10.5 years:

    1000(1 + i/2)14 (1 + 2i/4)14 = 1980.

    And the answer is


    1000(1.276) = 1276.

    33. The annual discount rate is


    1000 − 920
    d= 0.08.
    1000
    The early payment reduces the face amount by X. We then have
    1
    X[1 − (0.08)] = 288 ⇒ X = 300
    2
    and the face amount has been reduced to

    1000 − 300 = 700.

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