Special and Compound Interest Rates Explained
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ScribdTranslationsSpecial and Compound Interest Rates Explained
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ScribdTranslationsPRACTICAL CASE UNIT 2
SPECIAL INTEREST RATES, COMPOUND INTEREST RATES,
EQUIVALENCES OF INTEREST RATE AND SINGLE PAYMENTS.
Manuel Andrés Mican F
Miguel Martínez Prieto
Financial mathematics
2023
Solution to the practical case
General Context: METALLIC INDUSTRIES EL ARCO The company
metal industries EL ARCO is a company dedicated to production and
Marketing of metallurgical materials in the country has more than 20 years.
of experience. In its organizational development plan, one of the projects
pillars is the good management of your finances. The strategic director in his plan of
national expansion, I request the financial manager to take into account the best
profitability options for good management of money
organizational, therefore, among the functions are: investments, capitalizations,
credits, discounts, balances, with the purpose of obtaining better opportunities
profitable and financial.
Issues - Part 2. Exercise 1
Develop the following issue:
1. Explain in your own words what special and compound rates are.
Special rates are used by financial markets to project
prices, estimate the value of the minimum wage, businesses, etc., among these rates are
inflation, devaluation, and the opportunity interest rate of the investor.
Compound rates are used in markets when more than one is applied.
The interest rate and the value of the settled interest is a product of simultaneous action.
Among the most representative rates are DTY and UVR.
2. Explain what interest rate equivalences are.
Two interest rates are equivalent when they yield the same effective rates.
or when the accrued interest is reinvested after a period
determined, they accumulate the same amount of capital.
3. Solve the following financial math exercise using formulas and
procedure:
If we deposit $3,000,000 in an account that pays 12% annual interest compounded
Quarterly, how much money will we have after 18 months? Withdraw.
conclusions in this regard
FORMULA OF COMPOUND INTEREST
C =3.000.000
i = 12% ANNUAL - WHICH WE CONVERT TO QUARTERLY 3%
VF =
t = 18 MONTHS - WHICH WE CONVERT TO 6 QUARTERS
The first thing I need to do is convert the annual interest to monthly so that we can...
match with the formula we will do this by dividing 12% by 4 to get the value
quarterly, it would be 3% quarterly.
And then we convert the months into quarters.
1st quarter
18 months = __________ = 6 trimesters
3 months
VF = 3,000,000 (1 + 0.03) ^ 6
VF = 3.582.156
After 6 quarters we would have $3,582,156
Issues - Part 2.
Exercise 2
Develop the following issue:
Case:
The financial manager must update the employees' computer equipment, in order to
that they can work correctly, in this way, quote for two brands, for
know which of them offers you better value and financing. Carry out each of the
following financial math problems, presenting them appropriately.
Brand A: offers the computing equipment for a cash price of $3,560,000 or it
You can pay in six months, but it has a value of $4,380,000.
Brand B: the same computer equipment is sold financed at a rate of 4%
monthly. 1. Which of the two warehouses has higher financing for the team
of computation? Justify your answer
TO CALCULATE THE INSTALLMENT WE USE THE FORMULA F=p(1+j) ^n
F= 3,560,000 (1 + 0.04) ^6
F= 4.504.535 X = (1,04^5 + 1,04^4 + 1,04^3 + 1,04^2 + 1,04^1)
F= 4.504.535 X= 5.6323975
F=799.754
Brand B has the most expensive financing as the payment with them would be
$799.754 multiplied by 6 months is $4.798.524 and brand A is
$4,380,000
The financial manager, with all the money movements and to manage
promptly the company's treasury makes a deposit for a quarter to
DTF + 4, what will be the effective annual rate of the investment if the DTF is 13%
TA? Justify your answer.
THE FIRST THING WE WILL DO IS CALCULATE THE EFFECTIVE RATE
SEMIANNUAL
WE WILL FIND i
i = IN = DTF+4% = 4.25% QUARTERLY IN ADVANCE
N 4
Since the DTF is an anticipated rate, we must use the following formula to
find the effective interest rate
IE = (1-j) ^ -n-1
IE = (1-4.25) ^-4-1 = 18.97% ANTICIPATED EFFECTIVE INTEREST RATE
And we carry out the following formula to find the effective annual rate:
TEA = (1-(DTF TA+MARGEN)) ^-4 -1
4
EA = (1-(13%TA + 4%))^4-1
4
EA = (1-(0.13+0.04)) ^-4-1
4
EA = 28.5%
From my perspective, the financial manager is making good moves already.
that is pending on which provider can give him more benefits and that the
bank transactions should always be the most assertive.
Practical Application of Knowledge
This unit has served me both personally and professionally because it gives me
ideas on how I can support the company's processes with information
known from this unit regarding that we must face a loan or
how to solve a business that changed the interest rate.
References
SPECIAL INTEREST RATES, COMPOUND[Link]
[Link]/recursos/biblioteca/pdf/matematicas_financieras/unidad2_pdf1.pdf
EQUIVALENCES OF INTEREST RATES Y ONE-TIME PAYMENTS
[Link]
unidad2_pdf2.pdf