15. The force of interest, 8(t), is a function of time and at any time t (measure in years) is given by: (0.03 8(t) = at bt 0≤t≤ 10 10< t < 20 t > 20 where a and b are constants. The present value of RM100 due at time 20 is 50. (i) Calculate a. The present value of RM100 due at time 28 is 40. (ii) Calculate b. (iii) Calculate the equivalent annual effective rate of discount from time 0 to time 28.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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15. The force of interest, 8(t), is a function of time and at any time t (measure in years) is given
by:
(0.03
8(t) = at
bt
0≤t≤ 10
10< t < 20
t > 20
where a and b are constants.
The present value of RM100 due at time 20 is 50.
(i) Calculate a.
The present value of RM100 due at time 28 is 40.
(ii) Calculate b.
(iii) Calculate the equivalent annual effective rate of discount from time 0 to time 28.
Transcribed Image Text:15. The force of interest, 8(t), is a function of time and at any time t (measure in years) is given by: (0.03 8(t) = at bt 0≤t≤ 10 10< t < 20 t > 20 where a and b are constants. The present value of RM100 due at time 20 is 50. (i) Calculate a. The present value of RM100 due at time 28 is 40. (ii) Calculate b. (iii) Calculate the equivalent annual effective rate of discount from time 0 to time 28.
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