0
votes
1answer
30 views

Actuarial Science - Amortization

Kevin takes out a $10$-year loan of $L$, which he pays by the amortization method at an annual effective interest rate of $i$. Kevin makes payments of $1000$ at the end of each year. The total amount ...
1
vote
1answer
39 views

nominal rates and effective rates

I would like some help understanding some basic concepts about converting nominal rates into effective rates, and vice-versa. Some of the terms are a little confusing to me. Some examples I would ...
0
votes
1answer
95 views

Interest Rate Tree in Matlab

I would like to calibrate a interest rate tree using the optimization tool in matlab. Need some guidance on doing it. The interest rate tree looks like this: How it works: 3.73% = 2.5%*exp(2*0.2) ...
2
votes
1answer
88 views

Text on Probability Theory applied to Actuarial Science

I am a senior undergraduate who has passed the first three actuarial exams on probability (P), financial mathematics (FM), and models for financial economics (MFE). I am working on passing the life ...
0
votes
1answer
36 views

variance unchanged under subtracting mean - application in portfolio theory

How to get to even the first step? How to derive http://i.stack.imgur.com/R3TIk.png with given http://i.stack.imgur.com/3aLAE.png
0
votes
1answer
53 views

Questions on share prices of a Company.

Company Z is currently financed solely by common stock and has 1000 outstanding shares with a (time 0) market price of 10 dollars per share. The company’s expected earnings is 1000 dollarseach year ...
0
votes
1answer
45 views

Discounting Perpetuity Question

"A project pays a dividend of $0.75 next year and then grows at 12% for 3 more years, and then grows at 8% indefinitely thereafter, find PV" Okay so first step is to find the initial value of ...
2
votes
0answers
39 views

Reinvesting the interest (generalized version)

If I deposit \$1 at $t=0$ into an account which credits interest at the end of each year at a force of interest $\delta_t$ (assume it's integrable.) Then, if I reinvest the interest at an annual ...
0
votes
1answer
38 views

Question on duration matching and reddinggton's immunisation

An insurance company has liabilities of 6 million due in 8 years’ time and 11 million due in 15 years’ time. The assets consist of two zero-coupon bonds, one paying X in 5 years’ time and the other ...
0
votes
1answer
44 views

financial mathematics question

An investor is interested in purchasing shares of ABC company. The company pays annual dividends, and a dividend payment of 1.2 per share has just been made. Future dividends are expected to grow at ...
0
votes
1answer
86 views

When does variance fail to meet its purpose in mathematical statistics? [closed]

It have shown in a lot of both math and statistics book, however, When the books define the variance, it doesn't give much attention to math based theoretical background, i wonder if some formula that ...
1
vote
2answers
57 views

annuities - equations of value

Chuck needs to purchase an item in $10$ years. The item costs $ \$200$ today, but its price inflates at $4 \%$ per year. To finance the purchase, Chuck deposits $ \$20$ into an account at the ...
2
votes
2answers
314 views

Perpetuity Immediate Present Value Question

A perpetuity-immediate pays $X per year. Brian receives the first n payments, Colleen receives the next n payments, and Jeff receives the remaining payments. Brian's share of the present value of ...
1
vote
1answer
76 views

simple interest rate to product of interest rates

Which simple interest rate over six years is closest to being equivalent to the following: an effective rate of discount of 3% for the first year, an effective rate of discount of 6% for the second ...
0
votes
1answer
94 views

Present Value Cash Flow Questions - Discounting

At an annual effective interest rate of i, i > 0 all the following are equal: i. the present value of 10,000 at the end of 6 years ii. the sum of the present values of 6000 at the end ...
1
vote
2answers
136 views

Solving i for annuities equation without financial calculator

I would like to know if there was a way to approximate i here without a financial calculator, in the following equation: $\displaystyle -50000 + \frac{12992}{1+i} + \frac{12992}{(1+i)^2} + ⋯ + ...
2
votes
1answer
185 views

Bonds and Force of Interest

Studying for FM/2 and ran into this problem dealing with bonds; A 1,000 par value 3 year bond with annual coupons of 50 for the first year, 70 for the second year, and 90 for the third year is bought ...
1
vote
1answer
1k views

Increasing and decreasing annuity

Going in circles..... Find an expression for the present value of an annuity-immediate where payments start at 1, increase by 1 each period up to a payment of $n$, and then decrease by 1 each period ...
1
vote
1answer
137 views

Continuous annuity calculation

This is a problem from Marcel Finan's Exam FM/2 course. It is not homework but I am studying for the FM exam and trying to get through this. You are given $\frac{d}{dt}\bar{s}_t$ = $(1.02)^{2t}$. ...
2
votes
1answer
2k views

How to convert interest rate to discount factor

I'm studying on Kellison's Theory of Interest and I'm stuck on the exercise 20/a of the 1st chapter. If the $i=0.1$ then $d = 0.0901$ $d_5=\frac{A_5-A_4}{A_5}$ when I insert $d$ into this ...
1
vote
1answer
478 views

Converting an Annuity due to Annuity immediate

I'm working on the following problem at the moment while preparing for an exam. Find the present value of payments of 200 every six months starting immediately and continuing through four years from ...
3
votes
1answer
2k views

Confused about Effective Rate of Discount- Theory of Interest

I'm currently reading Kellison's book, The Theory of Interest. I've reached the chapter on Effective Rate of Discount and it's somewhat confusing. The book explains it as a loan where interest is paid ...
1
vote
1answer
331 views

Help understanding confusing present value question (Theory of Interest)

I'm currently enrolled in a theory of interest class that covers the same material that's on exam 2/FM. At the instructors recommendation, I'm working through all of the problems in the book on my own ...