Revision as of 21:18, 29 November 2023 by Admin (Created page with "An investor makes a payment of $100 immediately and a payment of $132 at the end of two years in exchange for a payment of $230 at the end of one year. Find the yield rate i. <ul class="mw-excansopts"> <li>5%</li> <li>10%</li> <li>15%</li> <li>20%</li> <li>10% or 20%</li> </ul> '''References''' {{cite web |url=https://web2.uwindsor.ca/math/hlynka/392oldtests.html |last=Hlynka |first=Myron |website=web2.uwindsor.ca | title = University of Windsor Old Tests 62-392 Theor...")
Nov 29'23
Exercise
An investor makes a payment of $100 immediately and a payment of $132 at the end of two years in exchange for a payment of $230 at the end of one year. Find the yield rate i.
- 5%
- 10%
- 15%
- 20%
- 10% or 20%
References
Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.
Nov 29'23
Solution: E
The equation of value (at the end of year 2) is
[[math]]
100(1+i)^2+132=230(1+i) .
[[/math]]
This is a quadratic in [math]i[/math] and if we solve it, we get [math]i=.1[/math] and [math]i=.2[/math]. So the interest rate is either [math]10 \%[/math] or [math]20 \%[/math]. We cannot eliminate either answer. They are both possible.
References
Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.