TUTORIAL EXERCISES WEEK 4
Question 1
12 payments of $2,000 each are made at 2-year intervals. Find the value of the series
(a) 2 years before the first payment at annual effective interest rate i 0.08 ,
(b) 8 years before the first payment at nominal annual interest rate i (2) 0.08 ,
(c) at the time of the final payment at nominal annual discount rate d (4) 0.08 ,
(d) 18 months after the final payment at nominal annual interest rate i (8) 0.08 , and (e) at
the time of the first payment at nominal annual interest rate i (4 / 3) 0.08 .
Question 2
Since June 30, 2010 Smith has been making deposits of $100 each into a bank account on the
last day of each month. For all of 2010 and 2011 Smith’s account earned nominal interest
compounded monthly at an annual rate of 9%. For the first 9 months of 2012 the account
earned i (12) 0.105 , and since then the account has been earning i (12) 0.12 .
Find the balance in the account on February 1, 2013.
Question 3
An m n year annuity of 1 per year has i =7% during the first m years and has i =11%
during the remaining n years. If sm 0.07 34 and sn 0.11 128 , first find n and then find the
accumulated value of the annuity just after the final payment.
For the following combinations of m and n, use Excel to determine the accumulated value of
the annuity, just after the final payment is made.
m n
1 1
0 10
3 2
30 1
20 20
10 5
Question 4
In return for an investment of $1000 in a fixed interest security, you will receive $40 at the
end of each half year plus your money back on redemption in 12 years. You intend to deposit
all of the proceeds in a bank account that will pay an effective rate of interest of 8% per
annum.
How much money will be in the bank account after 10 years?
STAT2032/6046 – Financial Mathematics 1
Question 5
Calculate the present value at January 1, 2013 of payments $100 on the 1st day of each
quarter during calendar years 2015 to 2024 inclusive.
Assume effective rates of interest of 8% per annum until December 31, 2019 and 6%
thereafter.
Question 6
State if the following expression is true or false. Show any working used to solve the
question.
s mn v n s m an where 0 n m
Past Exam Question – 2005 Final Exam Q1(b)(i)
k
Prove the following equality an(1/ k ) an (2 marks)
sk
Past Exam Question – 2005 Final Exam Q1
(a) Find the accumulated value of $100 at the end of two years if the nominal annual rate of
interest is 6% per annum convertible weekly.
(b) An investment is made at a force of interest of 8% p.a. for a period of 5 years. Find the
equivalent rate of simple interest per annum.
STAT2032/6046 – Financial Mathematics 2
