The force of interest 8(t) is a function of time and at any time t, measured in years, is given by the formula: s(t) = {0.03 (0.03 +0.005t for 0.06 for 0 6 (i) Derive, and simplify as far as possible, expressions in terms of t for the accumulated amount at time t of an investment of £1 made at time t = 0. You should derive separate expressions for both sub-intervals. (ii) Using the result in part (i), calculate the value at time t = 3 of a payment of £2,000 made at time t = 7. (iii) Calculate, to the nearest 0.1%, the constant nominal annual rate of interest convertible half-yearly implied by the transaction in part (ii). (iv) A continuous payment stream, under which the rate of payment per annum at time t is p(t)=500e-0.01t, is invested between t = 10 and t = 15. Using the result in part (i), calculate the present value (at time t = 0) of this investment.
The force of interest 8(t) is a function of time and at any time t, measured in years, is given by the formula: s(t) = {0.03 (0.03 +0.005t for 0.06 for 0 6 (i) Derive, and simplify as far as possible, expressions in terms of t for the accumulated amount at time t of an investment of £1 made at time t = 0. You should derive separate expressions for both sub-intervals. (ii) Using the result in part (i), calculate the value at time t = 3 of a payment of £2,000 made at time t = 7. (iii) Calculate, to the nearest 0.1%, the constant nominal annual rate of interest convertible half-yearly implied by the transaction in part (ii). (iv) A continuous payment stream, under which the rate of payment per annum at time t is p(t)=500e-0.01t, is invested between t = 10 and t = 15. Using the result in part (i), calculate the present value (at time t = 0) of this investment.
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
Section: Chapter Questions
Problem 1PS
Related questions
Question
SOLVE ONLY PARTS I) AND II), USING ONLY FORMULAS, NO TABLES, CORRECT ANSWERS ARE FOR I) A(T) = EXP(0.03T + 0.0025T^2) FOR 0 < T < 6 AND A(T) = EXP(-0.09 + 0.06T) FOR 6 < T. AND FOR II) C3 = £2000 X (EXP(0.1125)) / (EXP(0.33)) = £1,609.05
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education