Revision as of 11:34, 18 November 2023 by Admin (Created page with "'''Solution: C''' Convert the two annual rates, 4% and 5%, to two-year rates as 1.04<sup>2</sup> -1 = 0.0816 and 1.05<sup>2</sup>-1 = 0.1025. The accumulated value is <math display = "block"> 100\ddot{S}_{\overline{{{3}}}|{0.0816}}(1.05)^{4}+100\ddot{S}_{\overline{{{2}}}|0.1025} </math> With only five payments, an alternative approach is to accumulate each one to time ten and add them up. The two-year yield rate is the solution to <math>100 \ddot{s}_{\overline{5}|i}...")
Exercise
Nov 18'23
Answer
Solution: C
Convert the two annual rates, 4% and 5%, to two-year rates as 1.042 -1 = 0.0816 and 1.052-1 = 0.1025. The accumulated value is
[[math]]
100\ddot{S}_{\overline{{{3}}}|{0.0816}}(1.05)^{4}+100\ddot{S}_{\overline{{{2}}}|0.1025}
[[/math]]
With only five payments, an alternative approach is to accumulate each one to time ten and add them up. The two-year yield rate is the solution to [math]100 \ddot{s}_{\overline{5}|i} = 659.269[/math]. Using the calculator, the two-year rate is 0.093637. The annual rate is 1.0936370.5 -1 = 0.04577 which is 4.58%.
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