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Accumulated Value Calculations in Finance

This document contains 17 problems related to accumulation functions, interest rates, present and future values of investments, and time value of money concepts. The problems involve calculating accumulation functions from given amount functions, finding interest rates, future and present values, equivalent rates, and expressions involving interest and discount rates.

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144 views2 pages

Accumulated Value Calculations in Finance

This document contains 17 problems related to accumulation functions, interest rates, present and future values of investments, and time value of money concepts. The problems involve calculating accumulation functions from given amount functions, finding interest rates, future and present values, equivalent rates, and expressions involving interest and discount rates.

Uploaded by

estarian
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

STAT 3820 Homework 1

Chapter 1

1.1 Consider the amount function A(t) = t2 + 2t + 3


a) Find the corresponding accumulation function a(t).
b) Verify that a(t) satisfies the three properties of an accumulation fucntion
c) Find In .

1.2 It is know that a(t) is of the form at2 +b. 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.

1.3 (a) Assume A(t) = 100 + 5t. find i5 and i10 .


(b) Assume that A(t) = 100(1.1)t , find i5 and i10 .

1.4 If A(4) = 1000 and in = .01n find A(7).

1.5 (a) At what rate of simple interest will $500 accumulate to $615 in 2 12 years ?
(b) IN how many years will $500 accumulate to $630 at 7.8% simple interest?

1.6 Simple interest of i = 4% is being credited to fund. In which period is this


equivalent to an effective rate of 2.5%.

1.7 Assume that 0 < i < 1, show that: a) (1 + i)t < 1 + it if 0 < t < 1, b)
(1 + i)t > 1 + it if t > 1.

1.8 It is known that $600 invested for two years will earn $264 in compound interest.
Find the accumulated value of $2000 invested at the same rate of compound
interest for three years.

1.9 The sum of the present value of 1 paid at the end of n period and 1 paid at the
end of 2n is 1, Find (1 + i)2n .

1
1.10 It is know that an investment of $500 will increase to $4000 at the end of 30
years. Find the sum of the present values of three payments of $10,000 each
which will occur at the end of 20,40, and 60 years.

1.11 The amount of interest earn on A for one year is $336, while the equivalent
amount of discount is $300. Find A.

1.12 Assuming that 0 < d < 1, show that a) (1 − d)t < 1 − dt if 0 < t < 1, b)
(1 − d)t > 1 − dt if t > 1.

1.13 a) Express d(4) as a function of i(3) . b) Express i(6) as a function of d(2)

1.14 Find the accumulated value of $100 at the end of two years if the nominal
annual rate of interest is 6% convertible quarterly.

1.15 Given that i(m) = .1844144 and d(m) = .1802608, find m.


Rn Rn
1.16 Show that a) 0 δt dt = − loge v n . b) 0 A(t)δt dt = I1 + I2 + · · · + In .

1.17 Find the level effective rate of interest over a three year period which is equiv-
alent to an effective rate of discount 8% the first year,7% the second year, and
6% the third year.

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