Due September 18, 2013

Department of Mathematics and Statistics MATH2210: Mathematics of Finance

Problem Set #1
1. It is known that is of the form . If $100 invested at time 0 accumulates to $172 at time 3, find the accumulated value at time 10 of $100 invested at time 5. 2. Jane deposits 10 today and another 30 in five years into a fund paying simple interest of 11% per year. Tom will make the same two deposits, but 10 will be deposited n years from today and the 30 will be deposited 2n years from today. Toms deposit earns an effective annual rate of 9.15%. At the end of 10 years, the accumulated amount of Toms deposit equal the accumulated value of Janes deposits. Calculate n. 3. On January 21, 1999 Karl borrows $17,760 from Andrew and gives Andrew a promissory note. The note states that the loan will be repaid on April 30 of the same year, with interest at 12% per annum. On March 1 Andrew sells the promissory note to John, who pays Andrew a sum of money in return for the right to collect the payment from Karl on April 30. John pays Andrew an amount such that Johns yield (interest earned) from March 1 to maturity date can be stated as an annual rate of interest of 15%. a) Determine the amount that John paid to Andrew and the yield rate (interest rate) Andrew earned quoted on an annual basis. Assume all calculations are based on exact simple interest. b) Suppose instead that John pays Andrew an amount such that Johns yield is 12%. Determine the amount that John paid. 4. What is the present value of $178,570 due in 10 years if the effective annual interest rate is 6% for each of the first 3 years, 7% for the next 4 years and 10% for the final 3 years? 5. Latoya wishes to obtain $41,000 to pay her college tuition now. She qualifies for a loan with a level annual effective discount rate of 3.5%. a) How much money will she have to repay if the loan term is 6 years? b) What is the annual effective interest rate of Latoyas loan? 6. Brad and Robert each open new bank accounts at time 0. Brad deposits 1000 into his account and Robert deposits 500. Each account earns an effective annual discount rate d. The amount of interest earned in Brads account during the 11th year is equal to X. The amount earned in Roberts account during the 19th year is also equal to X. Calculate X.
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Due September 18, 2013

7. Given that

and

. Find m.

8. Jackie takes out a loan of $300,000 at a rate of 16% per year convertible 4 times a year. How much does she owe after 21 months?

9. Find n such that

10. Suppose we have compound interest and effective monthly interest rate of 0.5%. Find the equivalent rates , and d.