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other applications of coumpounding参考.ppt

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other applications of coumpounding参考

Chapter 8 Compound Interest: future value and present value 8.5 other applications of coumpounding Compounded- interest investments The two most common types of compound interest investment owned by Canadians are Guaranteed Investment Certificates and Canada Saving Bonds. For compound interest version: If the interest rate is fixed, use to calculate the maturity value. If the interest rate is either a variable rate or a step-up rate, you must multiply the individual (1+i) factors for all compounding period. That is Example What regular payment will an investor receive from a $9000, 4-year, monthly payment GIC earning a nominal rate of 8.25% compounded monthly? Solution: j=8.25% m=12 i=j/m=0.6875% PV=$9000 payment=PV*i =$9000*0.6875%=$61.88 the monthly payment will be $61.88. Example Suppose a bank quotes nominal annual interest rates of 8.6%, 8.5%, and 8.4% on 5-year GIC with annual,semiannual, and monthly compounding, respectively. Which rate should an investor choose? Solution: Use a table to show the given information. nominal interest compounding rate frequency 8.6% annual 8.5% semiannual 8.4% monthly j m i n 8.6% 1 8.6% 5 8.5% 2 4.25% 10 8.4% 12 0.7% 60 Suppose the initial investment is $1000 j=8.6% compounded annually j=8.5% compounded semiannually j=8.4% compounded monthly the investor should choose the monthly compounded option since it results in the highest value. Example 8.5c: Maturity Value of A Variable-Rate GIC A chartered bank offers a five-year “Escalator Guaranteed Investment Certificate.” In successive years it pays annual interest rates of 4%, 4.5%,5%, 5.5%, and 6%, respectively, compounded at the end of each year. The bank also o

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