Example 1

The interest rate is of 5% per

annum simple. Calculate the
amount of money which must be
invested on January 1, !!" to
produce #1,5!! on January 1,
!1".
Example
$r. Chan deposits #1,!!! on
January 1, !!% at a rate of i
effective. $rs. &mith deposits
#1,!!! on January 1, !!% at a
rate of !.'i effective. (n January
1, !)% $r. Chan*s account is
twice as lar+e as $rs. &mith*s.
Calculate i.
Example )
,t -ecember )1, !! the
present value of a -ecember )1,
!"! #. payment is #),!!!. ,t
-ecember )1, !1! the present
value of the same #. -ecember
)1, !"! payment is #%,!!!.
Calculate the annual effective
interest rate i.
Example "
, credit card char+es i/1.5% per
month, and a ban0 char+es i/1%
every four month.
Compare these two interest rates
and conclude who is char+in+
more, the credit card or the
ban02
Example 5:
Example 3 (SOA): At an effective
annual interest rate of i, i 3!, each of
the following two sets of payments
has present value 4:
(i) A payment of 121 immediately and
another payment of 121 at the end of
one year.
(ii) A payment of 144 at the end of
two years and another payment of 144
at the end of three years.
Calculate 4.
his e!ample can "e found in #$
manual, %ection 1.