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Discount, Denoted by D Which Is A Measure of Interest Where The Interest Is

The document discusses effective rates of interest and discount. It provides an example of a $1,200 loan for 1 year at an effective discount rate of 5%, meaning the borrower pays $60 interest at the beginning of the year and repays the $1,200 principal at the end. It also explains that at a discount rate of d, a borrower of $k must pay $kd to receive use of the $k for the period. A series of practice problems on interest, annuities, and calculating interest rates is then provided.

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Nguyễn Quang Trường
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84 views

Discount, Denoted by D Which Is A Measure of Interest Where The Interest Is

The document discusses effective rates of interest and discount. It provides an example of a $1,200 loan for 1 year at an effective discount rate of 5%, meaning the borrower pays $60 interest at the beginning of the year and repays the $1,200 principal at the end. It also explains that at a discount rate of d, a borrower of $k must pay $kd to receive use of the $k for the period. A series of practice problems on interest, annuities, and calculating interest rates is then provided.

Uploaded by

Nguyễn Quang Trường
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Giải thích cho d nhé:

The effective rate of interest is defined as a measure of the interest paid at


the end of the period. In this section, we introduce the effective rate of
discount, denoted by d; which is a measure of interest where the interest is
paid at the beginning of the period.
What do we mean by a statement such as \A loan of $1,200 is made for one
year at an effective rate of discount of 5%"? This means that the borrower
will pay the interest of 1200×0:05 = $60 (called the amount of discount)at
the beginning of the year and repays $1,200 at the end of the year. So
basically, the lender is getting the interest in advance from the borrower.
In general, when $k is borrowed at a discount rate of d; the borrower will
have to pay $kd in order to receive the use of $k. Therefore, instead of the
borrower having the use of $k at the beginning of a period he will only have
the use of $(k - kd):

 Bài tập
#Interest
1. At a certain rate of compound interest an investment of $1,000 will grow to $1,500 at the
end of 12 years. Determine its value at the end of 5 years.
2. *Truong and Chi each open up new bank accounts at time 0. Truong deposits
130 into his bank account, and Chi deposits 60 into her. Each account
earns the same annual effective interest rate.
The amount of interest earned in Truong’s account during the 13th year is
equal to X: The amount of interest earned in Chi’s account during the
18th year is also equal to X:
Calculate X
3. In Account A; an investment of $1,000 grows to $1,700 in four years at an
effective annual interest rate of x: In Account B; $3,000 is invested for five
years, at an effective rate of discount d = x: What is the ending balance in
Account B?
4. Find the accumulated value of $5,000 to be paid at the end of 10 years with
a rate of compound interest of 8%
(a) per annum;
(b) convertible quarterly;
(c) convertible monthly.
5. Calculate the nominal rate of discount convertible monthly that is equivalent
to a nominal rate of interest of 20% per year convertible monthly
6. A deposit is made on January 1, 2021. The investment earns interest at a
rate equivalent to a rate of discount of 6% convertible quarterly.
Calculate the monthly effective interest rate for the month of December 2021.
7. *Truong deposits X into a savings account at time 0, which pays interest at
a nominal rate of i; compounded semiannually. Chi deposits 2X into a
different savings account at time 0, which pays simple interest at an annual
rate of i: Truong and Chi earn the same amount of interest during the last 6
months of the 8th year. Calculate i
8. You need $500 on Jan 1, 2021. To save for this amount, you invest x on Jan
1, 2021 and 2x on July 1, 2021. The force of interest is δt = 0.03t where t is
0 on Jan 1, 2021. Find x
#Annuity
1. Consider an investment of $10,000 at 8% convertible semiannually. How much
can be withdrawn each half-year to use up the fund exactly at the end of
20 years?
2. A grandmother has a granddaughter entering university next year. Her
granddaughter expects to remain in school for 6 years and receive a PhD.
This grandmother wishes to provide $2,000 a year to her granddaughter for
entertainment expenses. Assuming a 3.5% effective annual interest rate, how
much does the grandmother have to deposit today to provide ten annual
payments starting one year from now and continuing for ten years?
3. *Seth, Janice, and Lori each borrow 5,000 for five years at a nominal interest
rate of 12%, compounded semiannually. Seth has interest accumulated over
the five years and pays all the interest and principal in a lump sum at the
end of five years. Janice pays interest at the end of every six-month period
as it accrues and the principal at the end of five years. Lori repays her loan
with 10 level payments at the end of every six-month period.
Calculate the total amount of interest paid on all three loans.
4. *Truong began saving money for his retirement by making monthly deposits of
200 into a fund earning 6% interest compounded monthly. The first deposit
occurred on January 1, 2021. Jim became unemployed and missed making
deposits 60 through 72. He then continued making monthly deposits of 200.
How much did Jim accumulate in his fund on December 31, 2070 ?
5. Calculate the present value of an annuity immediate with 20 annual payments
of 500 if the first payment of the annuity immediate starts at the end of the
fifth year. The annual effective interest rate is 8%.
6. Calculate the current value at the end of 5 years of an annuity due paying
annual payments of 1200 for 12 years. The annual effective interest rate is
6%.
7. A monthly annuity due pays 100 per month for 12 months. Calculate the
accumulated value 12 months after the last payment using a nominal rate of
4% compounded monthly
8. A monthly annuity immediate pays 100 per month for 12 months. Calculate
the accumulated value 12 months after the last payment using a nominal rate
of 4% compounded monthly
9. *At an annual effective interest rate of i; i > 0; both of the following annuities
have a present value of X :
(i) a 20-year annuity-immediate with annual payments of 55;
(ii) a 30-year annuity-immediate with annual payments that pays 30 per year
for the first 10 years, 60 per year for the second 10 years, and 90 per year for
the final 10 years.
Calculate X:

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