Question Types

  1. Calculate the equivalent nom. annual discount rate compounded quarterly
    dᵐ/m = (iᵐ/m) / (1+(iᵐ/m))
  2. If we have two equivalent discount rates, use the following formula:
    (1-(dᵐ/m))ᵐ = PVo = (1-(dᵖ/p))ᵖ
  3. Force of int formula
    AVt = PVo *eʳᵗ
  4. If all you're given is r (force of interest):

    1) Annual eff. int rate
    2) Nom. annual int. rate convertible quarterly
    3) Nom. annual discount rate convertible monthly
    4) Annual eff. discount rate
    • 1)eʳ = 1+i
    • (Solve for i)

    • 2) eʳ = (1+(iᵐ/m))ᵐ
    • (Solve for i⁴)

    • 3) eʳ = (1-(dᵖ/p))⁻ᵖ
    • (Solve for d¹²)

    • 4) eʳ = (1-d)⁻¹
    • (Solve for d)
  5. ... "compounded semiannually"
    AVt = PVo(1+(iᵐ/2)²ᵗ
  6. ... "convertible monthly"
    AVt = PVo(1+(iᵐ/12))¹²ᵗ
  7. Nom. annual int. rate is ... Calculate the equiv. force of int. if we assume a compounding frequency of:

    1) Once a yr
    2) Quarterly 
    3) 24 times per yr
    • The base formula is really:
    • eʳ= (1+i) [For 1 yr] OR eʳ= (1+(iᵐ/m))ᵐ [Multiple yrs]

    1) r= ln(1+i)

    2) r= 4ln(1+(iᵐ/m))

    3) r= 24ln(1+(iᵐ/m))
  8. 1)What is the annual compound discount rate?

    2) What is the discount factor v?
    1) d= i / (1+i)

    2) v= 1 / (1+i)
Author
GoBroncos
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365766
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