F i n a n c i a l M a t h e m a ti c s

Interest Rates and

Discount Rates

Lecture-2
By
Ghulam Nabi
 1a(ii) Simple Interest
• Let’s consider so-called “simple
interest.”
• What are the effective rates of
interest for years 1, 2, 3, . . . , t ?
• Under simple interest, the
accumulation function is linear.
• We will use i as the linear constant:
• a(t) = 1+ it
• We have the following by definition of it: