Financial Mathematics UPN

ADDITIONAL EXERCISES EFFECTIVE RATE

Suppose you are an investor who has to decide in which of the

Institutions shown in the attached table can place US$ 10,000.00.
during the next two years. If you know the rates that will be offered during that
time lapse:

Bank Year I Year II

International TEM 1.00% TNM 1.00%
From the City TNS 6.00% monthly cap 12.75%
America TNA 12.00% TES 6.00%

You should consider that the displayed offer corresponds to investments in

one (1) year time deposit certificates, so you must take into account that it is
it is mandatory to keep your investment in the bank of your choice during that period.
time, after which you may change banks for the second year, if you wish
it is convenient.
a) What is the maximum amount that you will be able to withdraw at the end of the second year?

b) What is the equivalent annual effective yield rate (TREA) of

true impact of investment?
US$ 12,712.27

2. What is the annual effective rate (TEA) that the following investment yielded?

Response: 38.07498344%

3. What is the annual effective rate that the following investment yielded?

31.88176182%

4. A very reliable friend whom I have known since childhood has asked me to lend him some money.

S/. 2,500.00, which is urgently needed today (a family member)

having had an accident); since he knows that I save for emergencies
relatives, has borrowed from me in exchange for paying me an additional 200.00 and

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return it to me in 20 days. If my savings account pays an effective rate

annual (TEA) of 2.9%.

a) What is the annual effective rate (TEA) that my friend is paying me?

b) How long should I wait to achieve the same interest?

mi cuenta?Respuestas: a) 299.6019499%, b) 970 días.
5. Paco opens an account with S/. 23,000.00, which offers him an effective rate.
monthly (TEM) of 0.80%. After 23 days, he is forced to withdraw S/. 1,700.00.
On day 63, the bank decides to change the rate to an effective monthly rate of 0.85%.
On day 70, he can return S/. 1,700.00 to his account. On day 103, he makes a purchase with
he charged a TV to his account with a price of S/. 1,080.00. If today is day 159 and
He decided to withdraw all his money because the bank lowered the interest rate.
a bi-monthly effective rate (TEB) of 0.75%. How much will you receive when approaching the
cash window? Answer: S/. 22,910.92

6. Roberto Carlos decides to set up a Metalworking, so he asks for a

loan to YourBank for US$ 50,000.00 to be repaid in 24 months. The rate
the bank applies an effective monthly rate at the time of disbursement
(TEM) of 2% and modifies it to an effective annual rate (TEA) of 30% at 12
months. If at the end of the sixth month he paid off US$ 10,000.00, at the end of the twelfth
US$ 14,000.00. Request:

a) How much should be amortized at the end of month 18, if the planning
from its cash flows indicates that it could have other US$
14,000.00 at the end of the 24 months?
b) If I decided to cancel the obligation in the thirteenth month, after having...
I have made the first two payments. How much do I need to pay the bank?
US$ 31,219.41
7. Jorge places a sum of money in a bank savings account,
the same one that has the following behavior pattern: for 9 months it pays
an annual nominal rate (TNA) of 20% per year capitalized quarterly (c.t.)
for the next four months pays an annual effective rate (TEA) of 25%
for 8 more months, pay a nominal annual rate (TNA) of 22% annually
capitalized monthly (c.m.), finally and for 15 more months pays a
semiannual effective rate (TES) of 12.4%. If at the end of the operation you withdraw from
Your account US$ 100,000.00. What was the initial capital and the effective annual rate?
unique equivalent of the operation? Answers: US$ 51,771.81 and
24.53809854%
8. Suppose you are an investor and that you have to decide in which of the
institutions shown in the attached table can deposit US$
99,500.00 over the next two years. If you know that the offered rates
son

Rate Bank of the Crown Casket Bank

ACTIVE TNA 48.5% bi-weekly TEA 48.0%
Year 1 PASSIVE TNT 1.46% monthly cap
TNC 5.75%

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ACTIVA TNC 16.2% monthly cap. TNB 8.01% daily cap

Year 2 PASSIVE TNS 3.3% bimonthly TNA
cap 6.8% quarterly cap

And it should also take into account that the displayed offer corresponds to
to certificates of deposit for one (1) year, so you should consider that it is
it is mandatory to keep all your money in the bank of your choice for a full year,
at the end of which, he will only be able to reinvest his capital plus the generated interest in
Another bank, for the next year (if he thinks it is appropriate). It asks to calculate:

The maximum amount of money you will have at the end of the 2nd year.
(126,451.28)
b) The effective rate over the investment period. (27.08671357%)
c) What is the TEA? (12.73274306%)

9. Diego Luis opened a savings account at Banco del Norte. If in the two
opportunities that came to the bank to inquire about the balance of their account, the
ATM operators informed you that your balances were:

At the end of the 5th month: US$ 36,702.40

At the end of the 11th month: US$ 49,399.54
It is requested:

a) If it is known that the rate at which the bank pays interest has never changed, what
What is that effective four-month rate (TEC)? (21.9042818%)

b) In the event that Diego Luis did not make any deposits or withdrawals in his account
savings What is the amount with which you opened the account?(28,653.04)

c) How much will Diego Luis be able to withdraw from his account, if it is known that he is
planning to cancel it at the end of the month 20?(77,137.50)

On January 18, the ABC company bought on the Lima Stock Exchange a
stock package for S/. 90,000, which was sold on February 26 of the same year
obtaining a net profit of S/. 6,500. Calculate the rate of return
monthly effective obtained from company ABC in that operation.
(5.51057818%)
11. In the process of acquiring a machine, the following is considered
financing alternatives to which a nominal annual interest rate of 17.50% applies, what is it
the best financing option for the acquisition of the machine?
a. Initial payment of S/. 4,000 and 2 quarterly payments of S/. 2,500. (8,707.54)
b. Initial fee of S/. 2,500 and 3 bimonthly payments of S/. 2,250. (8,898.27)
c. No down payment and pay the following 4 monthly installments respectively: S/.
2,500; S/. 3,000; S/. 1,800 y S/. 1,400.(8,442.67)
A single payment at the end of the fourth month of S/. 9,200. (8,718.50)

12. In the process of acquiring a machine, the following are available

alternatives
a) Initial amount of S/.2,000 and 2 monthly installments of S/.2,000. (5,826.94)

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b) Initial amount of S/. 1,520 and 3 monthly installments of the same amount as the installment.
initial.(5,819.49)

What is the best financing alternative considering an effective rate?

monthly of 3%?

On July 23, a deposit was made in a bank earning an effective rate.

Monthly of 5.4% which changed on September 16 to TNC 4.25% and TNA 16.55%
with monthly capitalization on October 11. Today, November 28,
The account balance is S/. 153,800.00.
a. What amount was originally deposited? (135,431.37)
What was the accumulated interest rate? (13.5630457%)

14. The company Jacobs has two debts at the Continental Bank. The first of
it matures in 48 days and on that date must pay S/ 10,000 loan
granted to a 3% TEM. At the same bank, there is another debt with
due in 63 days and on that date you must pay S/.15,000 loan
granted to a TNS 9.6% with bimonthly capitalization. The Bank has accepted
the proposal of the company Jacobs to consolidate its debt which must be
canceled in a single payment within 120 days from today.
a. What is the amount of your debts as of today? (9,538.07) - (14,512.01)
b. How much will the company Jacobs have to pay for the consolidated loan?
the new agreed date (120 days)? (10,735.18)–(15,455.64)

15. You find the following cash flow diagram for the balances of your
savings account:

According to what was learned in the course, you know that the flow located at the end of month 7
is equivalent to the one located at the end of month 18. With this information
and assuming that he never made any other money movements in the account, other than
the deposit with which she opened it. It asks to find out the following:

a) What is the annual effective rate (AER) with which the account is compensated?
savings?(7.294334256%)
b) What would be the accumulated value if you leave your money for 2 years? (3,314.66)
c) How much money did you open your savings book with? (2,879.28)

16. How much time (counting from moment 0) will a sum of S/. 6,000 take?
will replace three debts of S/. 2,000; S/. 1,000; and S/. 3,000 each with a due date of
30, 60, and 90 days respectively at an effective monthly rate of 3%?
(2.154727161 months; 64.64181482 days = 65 days)