Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Chapter 4
Chapter 4
1. The nominal rate of interest convertible once every two years is j, so that
.07
1 j 1
2
The accumulated value is taken 4 years after the last payment is made, so that
1 j
100 1 8i 1 6i 1 4i 1 2i 520
so that
i 12
1
12
12
1.02524
and
i 12 .100, or 10.0%.
2000
s32 .035
s4 .035
1.035 8
57.33450
1.31681 $35,824 to the nearest dollar.
4.21494
2000
34
Chapter 4
6. (a) We use the technique developed in Section 3.4 that puts in imaginary payments
and then subtracts them out, together with adapting formula (4.1), to obtain
200
a176 a32 .
s4
Note that the number of payments is
176 32
36, which checks.
4
(b) Similar to part (a), but adapting formula (4.3) rather than (4.1), we obtain
200
a a36 .
a4 180
Again we have the check that
180 36
36.
4
d 12 .09
7. The monthly rate of discount is d j
12
114
1 .9925
300
6
1 .9925
120
v3
1
125
v v v K
3
3
1 v
1 i 1 91
3
and
1 i 3 1 91 or 1 i 3 216
125
125
1
3
6
216
and 1 i
1.2 which gives i .20, or 20%.
5
125
9. Using first principles with formula (1.31), we have the present value
100
1 e .4
.
1 e .02
35
Chapter 4
10. This is an unusual situation in which each payment does not contain an integral
number of interest conversion periods. However, we again use first principles
8
140
4
measuring time in 3-month periods to obtain 1 v 3 v 3 L v 3 and summing the
geometric progression, we have
1 v 48
4 .
1 v 3
11. Adapting formula (4.9) we have
4
4
&
&
2400a&
800a&
.
10 .12
5 .12
Note that the proper coefficient is the annual rent of the annuity, not the amount of
each installment. The nominal rate of discount d 4 is obtained from
d 4
1
The answer is
1 i 1.12 and d
10
1 1.12
2400
.11174
12. (a)
(b)
1 1.12
800
.11174
4 1 1.12 4 .11174.
1
m
1 m tm
1 1m
1 vn 1 v 1 vn
m
&
&
&
&
&
&
v an an v an a1
m m anm .
m t 1
d
i
i
t 1 m
The first term in the summation is the present value of the payments at times
1 ,1 1 ,K , n 1 1 . The second term is the present value of the
m
m
m
2
payments at times m ,1 2 m ,K , n 1 2 m . This continues until the last term
is the present value of the payments at times 1, 2,K , n. The sum of all these
m
payments is an .
2
&
a&
10,
vn
2
n
.
n
2 10 or v 10d
d
Now expressing the interest functions in terms of d, we see that
2
2
&
&
a&
v n a&
v 1 d and d
2 1 1 d 2 .
36
Chapter 4
We now have
1 d n 20 1 1 d .5
.5
n ln 1 d ln 20 1 1 d
ln 20 1 1 d
.
ln 1 d
.5
and
14. We have
1 v n
1 v 2 n
i
or 3 2 2
2 45 2 .
i
i
i
3 1 v n 2 1 v 2 n or 2v 2 n 3v n 1 0
n
which can be factored 2v n 1 v n 1 0 or v 1 2 , rejecting the root v 1. Now
using the first and third, we have
3 1 v 45i or i
n
3 1 1
2 1.
45
30
1 v 4 v 4 L v
3
141
1 v 36
3 .
1 v 4
2400an 40,000 or an 50 .
3
Thus
an
1 e .04 n 50
.04
3
or
37
Chapter 4
1 e .04 n
and
2
3
e .04 n
1
3
18. We have
an
and
1 vn
4 or v n 1 4
1 i n 1
n
sn
12 or 1 i 1 12 .
Thus, 1 12
1
8 1
.
leading to the quadratic 1 8 48 2 1, so that
1 4
48 6
an v dt
t
Now
1 r
e 0
dr
n
0
n 1 r
r dr
e 0 e 0
dr
dt
e ln 1t 1 t .
Thus,
1
an 1 t dt ln 1 t 0 ln n 1 .
n
t
20. Find t such that v a1
1 v iv
i
1 i
. Thus, t ln v ln v ln
and t 1 ln .
Da n
n an
i
Ia n
. Thus,
Ia n Da n 1 a&
& nv n n an
i n
1 v n
1
an 1 v n nv n n an n 1
n 1 an .
i
i
38
&
a&
nv n
n
i
and
Chapter 4
Diagrammatically,
Time:
Ia n :
Da n :
1
1
2
2
n 1
n 1
n
n 1
Total:
3
3
n2
n 1
K
K
n 1
n 1
n
n
K
K
2
n 1
1
n 1
Pan Q
an nv n
i
6a20
a20 20v 20
i
v4
1
10 a10 10v 4 a14 a4
i
i
1
10 1 ia4 a14 a4
i
1
10 a14 a4 1 10i .
i
v 4 Da 10
1
i a&&n nv n nv n
& 1 i an an
a&
n
.
i
i
d
1 1
PV Ia v n Ia 1 v n 2
i i
n
n
a
1 v
1
1 v
n.
1
id
d
i
i
PV Ia n v n na
24. Method 1:
Method 2:
25. We are given that 11v 6 13v 7 from which we can determine the rate of interest. We
have 11 1 i 13, so that i 2 /11. Next, apply formula (4.27) to obtain
2
P Q 1 2 11
11
2 2 2 66.
i i
i i
2
2
v
v2
2
X va
and 20 X v Ia .
i
id
39
Chapter 4
Therefore,
v
v2
X
i 20id
27. The semiannual rate of interest j .16 / 2 .08 and the present value can be expressed
as
10 a10
300a10 .08 50 Da 10 .08 300a10 .08 50
.08
10 A
300 A 50
6250 325 A.
.08
28. We can apply formula (4.30) to obtain
2
19
1.05 1.05
1.05
PV 600 1
1.1025 1.1025
1.1025
1 1.05 /1.1025 20
600
$7851 to the nearest dollar.
1 1.05 /1.1025
29. We can apply formula (4.31)
i k .1025 .05
.05, or 5%,
1 k
1 .05
&
$7851 as an
Note that we could have applied formula (4.32) to obtain PV 600a&
20 .05
alternative approach to solve Exercise 28.
30. The accumulated value of the first 5 deposits at time t 10 is
The total accumulated value is 9309.57 7297.16 $16, 607 to the nearest dollar.
40
Chapter 4
1 .01k 1 .01k
4096 1000
5
1.25 6
1.25 7
1.25
or
1/ 1.25
1
4
1 1 .01k /1.25 1.25 .25 .01k
5
4.096
10
1
.25 .01k
and k 15%.
32. The first contribution is 40,000 .04 1600. These contributions increase by 3%
each year thereafter. The accumulated value of all contributions 25 years later can be
obtained similarly to the approach used above in Exercise 30. Alternatively, formula
(4.34) can be adapted to an annuity-due which gives
1.05 25 1.03 25
1.05 $108,576 to the nearest dollar.
1600
.05 .03
33. Applying formula (4.30), the present value of the first 10 payments is
1 1.05 /1.07 10
1.07 919.95.
.07 .05
100
The 11th payment is 100 1.05 9 .95 147.38 . Then the present value of the second 10
1 .95 /1.07 10
10
payments is 147.38
1.07 1.07 464.71 . The present value of
.07 .05
34. We have
PV
nm
2
1 m1
m
m
v
2
v
nmv
m2
1
m2
1
1
PV 1 i m 1 2
m
1
m
1
PV 1 i m
1 2v m L nmv n m
1
1 v m L v n m nmv m
1
m
&
a&
nv n .
n
41
nm
Chapter 4
Therefore
PV
35. (a)
(b)
m
&
a&
nv n
n
m 1 i m 1
1
m
&
a&
nv n
n
im
12 terms
1 12 terms
1
1 1 L 1 2 2 L 2 12 24 3.
12
12
1
1 2 L 12 13 14 L 24 24 25 25 .
2 144 12
144
36. We have
PV v 5 v 6 2v 7 2v8 3v 9 3v10 L
v5 1
5
7
9
&
v v v L a&
1 v
v
1
v
.
2
1 v iv i vd
37. The payments are 1,6,11,16,. This can be decomposed into a level perpetuity of 1
starting at time t 4 and on increasing perpetuity of 1, 2,3,K starting at time t 8 .
Let i4 and d 4 be effective rates of interest and discount over a 4-year period. The
present value of the annuity is
1
1
1
5 1 i4
i4
i4 d 4
where i4 1 i 1.
4
We know that
1
1 i 4 .75 1 4 / 3, or i4 4 1 1 and d 4 3 1 .
3
3
1 13 4
Thus, the present value becomes
3
3 5
4
1 1
3 4
3 45 48.
1 j
1.03
1
1.03
1
112.59
L
1.03923 1.03923
1 1.03 /1.03923
upon summing the infinite geometric progression.
39. The ratio is
42
1.08, so that
10
5
5
0
tdt
tdt
Chapter 4
75 / 2
3.
25 / 2
t
10
1 2
5
2
5
1 2
0
2
Ia
1
1
156.25.
2
.08 2
1 k
t
1 k
1
i
t
0 f t v dt 0 1 i dt 1 k
ln
1 i 0
1
1
1
.
ln 1 i ln 1 k i k
1 k
ln
1 i
(b)
n
0
n t v t dt nan Ia n
n
n an
n 1 v n an nv
43. In this exercise we must adapt and apply formula (4.44). The present value is
14
1
t 2 1 e
t
0
1 r 1 dr
dt.
The discounting function was seen to be equal to 1 t 1 in Exercise 19. Thus, the
answer is
14
1
14 t 1 t 1
14
t2 1
dt
dt t 1 dt
1
1
t 1
t 1
t 2 t
2
14
1
98 14 1 84.5.
2
43
Chapter 4
1
20
1 v.5
so that 1 v.5 .05 and v.5 .95.
1 v.5 v v1.5 L
1
20
1 v2
4
so that X 20 1 v 2 20 1 .95 3.71.
X 1 v2 v4 L X
45. We have
n
0
at dt
n an n n 4
1 n
t
dt
1
40.
0
.1
46. For each year of college the present value of the payments for the year evaluated at the
beginning of the year is
1200a912/12 .
The total present value for the payments for all four years of college is
&
1200a912/12 1 v v 2 v3 1200a&
a 12 .
4 9 /12
P
.
i
1 1
For annuity #2, we have PV2 q 2 .
i i
Denote the difference in present values by D.
D PV1 PV2
(a) If D 0 , then
pq q
2.
i
i
pq q
q
q
2 0 or p q
or i
.
i
i
i
pq
dD d
p q i 1 qi 2
di di
p q i 2 2qi 3 0.
Multiply through by i 3 to obtain
44
Chapter 4
p q i 2q 0 or i
2q
.
pq
48. We must set soil (S) posts at times 0,9,18,27. We must set concrete posts (C) at times
0,15,30. Applying formula (4.3) twice we have
PVS 2
a36
a9
and PVC 2 X
a45
a15
a36
a9
2 X
a45
so that
a15
a a
a
a a
X 2 36 45 45 2 36 15 1 .
a9 a15 a15 a9 a45
1 vn
1 v2n
n
49. We know an
a, so that v 1 a . Similarly, a2 n
b, so that
2
v 2 n 1 b . Therefore, 1 b 1 a 1 2a a 2 2 , or a 2 2 2a b so
2a b
. Also we see that n ln v ln 1 a n ln 1 a so that
that
a2
an nv n
ln 1 a
n
. From formula (4.42) we know that Ia n
. We now
n
substitute the identities derived above for an , n, v , and . After several steps of
tedious, but routine, algebra we obtain the answer
a3
a
2a b b a ln
.
2
2a b
b a
n
n
d
d n t d n
t
t 1
t
1
v
tv t v Ia n .
50. (a) (1)
n
di
di t 1
di t 1
t 1
t 1
(2)
(b) (1)
(2)
d
a
di n
i 0
v Ia n
i 0
t
t 1
n n 1
.
2
n
n
d
d n
d n
t
t 1
an v t dt 1 i dt t 1 i dt v tv t dt v Ia n .
0
0
di
di 0
di 0
d
a
di n
i 0
v Ia n
t 0
tdt
0
45
n2
.
2