Scribd
Upload
34 views

Assignment 3

The document contains 9 multi-part math problems involving calculations of present and future values for various types of annuities including perpetuities, loans, and other financial instruments. The problems cover topics such as determining payment amounts, interest rates, and total interest paid given information about payment schedules, interest rates, and present values.

Uploaded by

Ridhwan Afiff
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
34 views

Assignment 3

The document contains 9 multi-part math problems involving calculations of present and future values for various types of annuities including perpetuities, loans, and other financial instruments. The problems cover topics such as determining payment amounts, interest rates, and total interest paid given information about payment schedules, interest rates, and present values.

Uploaded by

Ridhwan Afiff
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

Assignment 3: General Annuities

1. A perpetuity paying 1 at the beginning of each 6-month period has a present value of
20. A second perpetuity pays 𝑋 at the beginning of every 2 years. Assuming the same
annual effective interest rate, the two present values are equal. Determine 𝑋. (Ans:
3.71)

𝑛
2. For a given 𝑛, it is known that 𝑎̅𝑛⏋ = 𝑛 − 4 and 𝛿 = 10%. Find ∫0 𝑎̅𝑛⏋ 𝑑𝑡. (Ans: 40)

3. A perpetuity has payments at the end of each four-year period. The first payment at
the end of four years is 1. Each subsequent payment is 5 more than the previous
payment. It is known that 𝑣 4 = 0.75. calculate the present value of this perpetuity. (Ans:
48)

4. A perpetuity makes payments starting five years from today. The first payment is $1000
and each payment thereafter increases by 𝑘% per year. The present value of this
perpetuity is equal to $4096 when computed at 𝑖 =25%. Find 𝑘. (Ans: 7851.19)

5. If 𝑋 is the present value of a perpetuity of 1 per year with the first payment at the end
of the second year and 20𝑋 is the present value of a series of annual payments 1, 2,
3, . . . with the first payment at the end of the third year, find 𝑑. (Ans: 1/21)

6. A loan of 10,000 is repaid with a payment made at the end of each year for 20 years.
The payments are 100, 200, 300, 400, and 500 in years 1 through 5, respectively. In
the subsequent 15 years, equal annual payments of 𝑋 are made. The annual effective
interest rate is 5%. Calculate 𝑋. (Ans: 1075)

7. An insurance company purchases a perpetuity-due providing a geometric series of


quarterly payments for a price of 100,000 based on an annual effective interest rate of
𝑖. The first and second quarterly payments are 2000 and 2010, respectively. Calculate
𝑖. (Ans: 10.6%)

8. Mike buys a perpetuity-immediate with varying annual payments. During the first 5
years, the payment is constant and equal to 10. Beginning in year 6, the payments
start to increase. For year 6 and all future years, the payment in that year is 𝐾% larger
than the payment in the year immediately preceding that year, where 𝐾 <9.2. At an
annual effective interest rate of 9.2%, the perpetuity has a present value of 167.50.
Calculate 𝐾. (Ans: 4.0)

9. Seth, Janice, and Larry each borrow 5000 for 5 years at an annual 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 is accrued and the
principal at the end of five years. Larry repays his loan with 10 level payments at the
end of every six-month period. Calculate the total amount of interest paid on all three
loans. (Ans: 8747.64)

You might also like