R M 410: Financial Mathematics

Homework #2
Due Tue, Sep 12, 2017

1. A certain amount of money was invested for four years. If d1 = 10%, i2 = 20%,
A(2) = $1000, d3 = 20%, and i4 = 10%, how much interest was earned over the four
years. (Answer: $625)

2. If i and d are equivalent rates, iA = $450, and dA = $400, find A. (Answer: $3, 600)

3. Assuming i, d, and v are equivalent, four of the following five expressions have the
same value (for i > 1). Which one is the exception?
(a) d3 /(1 d)2 (b) (i d)2 /(1 v) (c) (i d)d (d) i3 i3 d (e) i2 d

4. Yihan makes a deposit into an account that offers a nominal interest of 10% per annum
payable semiannually. At the same time, Kristina deposits 1000 into an account that
offers simple interest. At the end of 5 years, the forces of interest on the two accounts
are the same, and Kristinas account has a balance of X. Find X.

5. A fund earns interest at a force of interst t = kt. A deposit of 100 at time 0 will grow
to 250 after 5 years. Find k.

6. Two funds, X and Y , start with the same amount. You are given:

Fund X accumulates at a force of interest of 5% per annum.

Fund Y accumulated at a rate of inerest j, convertible semiannually.
After eight years, Fund X is 1.05 times as large as Fund Y .

Find j.

7. Assume t = t/(1 + t2 ), t > 0, where t is in years. An investment was worth $100 at

t = 2.

(a) What will the investment be worth at t = 5? (Answer: $228.04)

(b) What is the equivalent effective annual discount rate over the interval 2 < t <
5? (Answer: 24.03%)

8. It takes 11.553 years for an initial investment to double at an annual force of interest
.
How long will it take for an initial investment to triple at a nominal rate of interest
numerially equal to and convertible twice a year?