Scribd Logo
Upload

Welcome to Scribd!

  • 10 views

    Seminar 3

    Uploaded by

    galvarezllado
    maths for finance upf barcelona

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Seminar 3

    Uploaded by

    galvarezllado
    10 views3 pages
    maths for finance upf barcelona

    Original Title

    seminar3

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    maths for finance upf barcelona

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    10 views3 pages

    Seminar 3

    Uploaded by

    galvarezllado
    maths for finance upf barcelona

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 3

    Seminar 3 - Financial Mathematics

    These are the practice problems that will be treated in the 3rd seminar class.

    You do NOT have to hand in solutions, but should be prepared to solve these

    exercises during class. Solutions to these exercises will not be uploaded, so

    please make sure you take notes in class.

    Practice Problem 3.1 a

    A perpetuity paying 1.000$ at the end of each month is replaced with an annuity paying

    X$ each month for 10 years. Calculate X if j12 = 6.96%

    Practice Problem 3.1 b

    If the annuity in 3.1a paid 2.500$ at the end of each month, how long would the annuity

    last and what would be the size of the final, smaller payment?

    Practice Problem 3.2

    Determine the present value of future contributions to a pension plan for a person aged

    35, earning 30.000$ per year and expecting to retire at 65. The pension plan requires

    contributions of 5% of salary and the employee expects to receive average annual salary

    increases of 3%. Use an annual effective rate of interest of 7% and assume contributions

    are made at the end of each year.

    Practice Problem 3.3

    Consider a perpetuity whose payments at the end of each year are R, R+p, R+2p,...,

    R+(n-1)p, R+np, R+np,... . The payments increase by a constant amount p until they

    reach R+np, after which they continue without change. Show that the discounted value

    A of such a perpetuity at rate i per annum is given by:

    R+pa(n)i
    A= i

    1
    Practice Problem 3.4

    Consider a perpetuity in which payments begin at P at the end of the first period and

    increase by Q per period thereafter. Assuming the interest rate i per period is constant

    and P > 0, Q > 0. Show that the discounted value of this perpetuity is given by:

    P Q
    i + i2

    (Hint: take the limit of the corresponding annuity formula as n approaches infinity.)

    Practice Problem 3.5

    Determine the present value of monthly payments of 20$,25$, 30$, 35$, ... for 100 months

    if interest is 10% continuously compounded and payments are made at the end of each

    month.

    Practice Problem 3.6

    Determine the discounted value of a series of 20 annual payments if j1 = 5% and we want

    to increase payments by an inflation factor of j1 = 2% each year, assuming payments are

    made at the end of each year and the first payment is 500$.

    Practice Problem 3.7

    Show that the discounted value A of a decreasing annuity whose n payments at the end

    of each year are nR, (n − 1)R, (n − 2)R,...., 2R, R is:

    R
    A= i (n − a(n)i ) at rate i per year.

    Practice Problem 3.8

    In 2002, a research foundation was established by a fund of 2.000.000$ invested at a rate

    that would provide 240.000$ at the end of each year, forever. What is the rate earned?

    After the payment in 2007, the rate of interest is being changed to j1 = 10%. If the fund

    wants to continue paying 240.000$ annually, how many full payments can be made at the

    new rate?

    2
    Practice Problem 3.9

    Determine the present value of a perpetuity under which an amount p is paid at the end

    of the second year, p + q at the end of the fourth year, p + 2q at the end of the sixth year,

    p + 3q at the end of the eight year, etc., if interest is at rate i per year.

    Practice Problem 3.10

    The price of a used car is 6.000$. The dealer will allow their customers to buy it pay-

    ing 2.400$ now and to pay instalments of 300$ per month for a year. Otherwise, if the

    customer does not want the financing option and pays everything today in cash, he will

    give a 10% discount over the original price. Determine the implied interest rate j12 of the

    dealers financing plan.

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy