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CHE374F - 2016 - Problem Set #2-Solution: Question #1

The document contains solutions to 5 questions from a problem set on finance topics. Question 1 involves calculations of annual interest rates using different compounding periods. Question 2 repeats this for another interest rate. Question 3 finds equivalent annual rates for an effective daily rate and solves present value problems. Question 4 converts between annual, quarterly, and continuously compounded rates. Question 5 involves calculations for an annuity and finds the sustainable annual withdrawal amount.

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44 views2 pages

CHE374F - 2016 - Problem Set #2-Solution: Question #1

The document contains solutions to 5 questions from a problem set on finance topics. Question 1 involves calculations of annual interest rates using different compounding periods. Question 2 repeats this for another interest rate. Question 3 finds equivalent annual rates for an effective daily rate and solves present value problems. Question 4 converts between annual, quarterly, and continuously compounded rates. Question 5 involves calculations for an annuity and finds the sustainable annual withdrawal amount.

Uploaded by

daveix3
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
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CHE374F 2016 - Problem Set #2-Solution

Question #1:
2
2

Part a: (1 + ) = 1 + .034
12

Part b: (1 + 12)

= 3.3716%

= 1 + .034

365

Part c: (1 + 365)

= 3.3481%

= 1 + .034

Part d: = 1 + .034

= 3.3436%

= 3.3435%

Money owed(1 + .034 ) 100,000 = $114309.46

Question #2:
Part a: (1 +

6% 2
)
2

Part b: (1 +

6% 12
)
12

=1+
=1+

6% 365

Part c: (1 + 365)

=1+

Part d: 6% = 1 +

= 6.09%

Money owed: (1+. 0609)6 100,000 = $142576.09

=6.1678%

Money owed: (1+. 061678)6 100,000 = $143204.43

=6.1831% Money owed: (1+. 061831)6 100,000 = $143328.70

=6.1837%

Money owed: (1+. 061837)6 100,000 = $143332.94

Question #3:
Part a: (1+ ) = .023

= 2.3267%
6

Part b: 0 = .

0 =100. (.023).(12)

Part c: 0 = .

0 =100. (.023).(12)

Part d: six months:

0 =100. (.02).(12)

0 = $ 98.86

0 = $ 98.29

nine months:

0 =100. (.02).(12)

0 = $ 99.00
0 = $ 98.51

Page 1 of 2

Question #4:

Given

Calculate

Answer

8 % interest per year


(effective)

Monthly interest rate based


on monthly compounding

(1+8%) = (1+r)^12

3.5% interest per year based


on trading day compounding

Interest per year (effective)

(1+3.5%/252)^252=1+r

0.6434 %

3.562%

or (1+3.5%/365)^365=1+r
4% interest per year, with
quarterly compounding

Continuously compounding
interest rate per year

(1+4%/4)^4 = exp(r)

3.980 %

1.5% interest per month


compounded monthly

Continuously compounding
interest rate per quarter

(1+1.5%)^12 = exp(r*4)

1.2% interest per quarter with


monthly compounding

Interest per three years based


on semi-annual compounding

(1+1.2%/3)^36 = (1+r/6)^6
14.545%

4.467 %

Question #5:
a
b
c

1
2
3
4
5
6
7
8
9
10
78030.00 81182.41 84462.18 87874.45 91424.58 95118.13 98960.91 102958.93 107118.47
111446.05
78030.00 80142.01 82339.35 84625.46 87003.93 89478.49 92053.02 94731.56 97518.31
100417.65
78030.00 70668.79 63010.18 55042.17 46752.24 38127.41 29154.13 19818.33 10105.37
0.00
Annual withdraw needed -->
10105.36848

Page 2 of 2

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