Alifia Farradita Fedli / 119410006

1.2. The accumulation and amount function

1. consider the amount function A(t) = t2+2t+3.

a) find the corresponding accumulation function a(t).

Answer :
A(t) = t2+2t+3 and A(0) = 3 = k
So that
A (t) A(t ) 1 2
a(t) = = = (t +2t+3).
k A (0) 3

b) verify that a(t) satisfies the three properties of an accumulation function.

Answer :

1 1
(1) a(0) = 1 >>> a(0) = [(0)2 + (0)+ 3] = (3) = 1.
3 3
1 2
(2) a(t) = (t +2t+3).
3
1
a’(t) = (2t+2) > 0 , for t≥ 0
3
so that a(t) is a an increasing function.
(3) a(t) is continuous if :
lim a( x ) = lim ¿ = lim ¿
x→ t x→ t−¿ a(x)¿ x→ t+ ¿a (x)¿

 a(t)
>> example : t = -1
2
a(-1) =
3
 lim a( x )
x→ t
>> example : t = -1
lim 1
lim a(x ) = x →−1 (t2+2t+3).
x→−1
3
1
= [(-1)2+2(-1)+3]
3
2
=
3
 lim ¿
x→ t−¿ a(x)¿
>> example : t = -1
lim ¿ = lim 1
¿
(t2+2t+3).
x→−1−¿a (x)¿ x→−1−¿ ¿
3
1
= [(-1)2+2(-1)+3]
3
2
=
3
  lim ¿
x→ t+ ¿a (x)¿
>> example : t = -1
lim ¿ = lim 1 ¿ (t2+2t+3).
x→−1+¿ a(x)¿ x→−1+¿ ¿
3
1
= [(-1)2+2(-1)+3]
3
2
=
3
Because lim a( x ) = lim ¿ = lim ¿ = a(t) = 2 , so a(t) is a
x→ t x→ t−¿ a(x)¿ x→ t+ ¿a (x)¿ 3
continuous function.

c) find In
Answer :
In = A(n) – A(n-1)
= [n2 + 2n + 3] – [(n-1)2 + 2(n-1) + 3]
= n2 + 2n + 3 – [n2 – 2n + 1 + 2n – 2 + 3]
= n2 + 2n + 3 – n2 + 2n – 1 - 2n + 2 – 3
= 2n – 1.
2. a) prove that A(n) – A(0) = I1+I2+....+In.
Answer :
I1+I2+....+In = A(1) – A(0) + A(2) – A(1) +..........+ A(n) – A(n-1) , n ≥ 1
= A(n) – A(0).
b) verbally interpret the result obtained in (a).
Answer :
RHS adalah jumlah bunga bunga yang diperoleh selama setiap periode n.
LHS adalah kenaikan dana selama n periode, yang seluruhnya terkait dengan
bunga yang diperoleh.

3. For the $5000 investment given Example 1.1, find the amount of interest earned
during the second year of investment. i.e. between times t = 3 and t = 4.
Answer :
 From the example 1.1, we know that
A(2) = 11.130,00.
A(3) = 11.575,20.
A(4) = 12.153,96.
 Let K be the accumulated value of the $5000. K canbe determined by ratio and
proportion.
K A ( 4 )− A(3) 12.153,96−11.575,20
= → K = 5000 = $260.
5000 A (2) 12.153,96 .

4. It is known that a(t) is of the form at2 + b. If $100 invested at time 0 accumulates
to $172 at time 3,find the accumulated value at time 10 of $100 invested at time 5.
Answer :
Diket :
 a(t) = at2 + b.
 $100, at time 0.
  $172, at time 3.
Dik : find the accumulated value at time 10 of $100 invested at time 5 ?

≫From a(t) = at2 + b, we can subsitution t = 0 dan t = 3, and elimination of the

equation.
a (0) = b = 100
a(3) = 9a + b = 172

≫From the equation above, it is known that the values of a=8 and b=100.
Thus,
a (5) = 25a + b = 25(8) + 100 = 300.
a(10) = 100a + b = 100(8) + 100 = 900.

a(10) 900
And the answer is 100 = 100 = $300.
a(5) 300

1.3. The Effective rate of interest

5. Asumme that A(t) = 100 + 5t.

a) Find i5.
Answer :
A (5) – A (4) 100+5 (5 ) – [100+5 ( 4 ) ] 125−120 1
I5 = = = = .
A ( 4) 100+5 (4) 120 24
b) Find i10.
Answer :

A (10) – A (9) 100+5 (10 ) – [100+5 ( 9 ) ] 150−145 1

I10 = = = = .
A (9) 100+5 (9) 145 29
t
6. Assume that A(t) = 100 (1.1) .
a) Find i5.
Answer :
A (5) – A (4) 100(1.1)5 – 100(1.1)4 161.05−146.41 14.64
I5= = = = = 0.1.
A ( 4) 100 (1.1)4 146.41 146.41
b) Find i10.
A (10) – A (9) 100[ (1.1 ) 10 – ( 1.1 ) 9] 11−9.9
I10 = = = = 0.1
A (9) 100[ ( 1.1 ) 9] 9.9
7. Show that A(n) = (1 + in) A(n – 1),where n is positive integer.
Answer :
A (n)– A( n−1)
From formula : In =
A (n−1)
So that ,
A(n) – A (n−1) = In [ A(n−1)¿
A(n) = In [ A(n−1)¿ + A(n−1)
A(n) = (in + 1) A(n – 1).

8. If A(4) = 1000 and in = 0,1n, where n is a positive integer, find A(7).

Answer :
 A(7) = A(4)(1+i5)(1+i6)(1+i7)
= 1000 (1.05)(1.06)(1.07)
= $1190.91.

1.4. Simple Interest

9. a) At what rate of simple interest will $500 accumulate to $615 in 2 ½ years?

Answer :
Diket : - k = $500
- AC = $615
- t = 2.5
Dit : i ?
AC = k. (1+ it)
615 = 500 (1+ i2.5)
615 = 500 + 1250i
1250i = 115
115
i= = 0.092 or 9.2%
1250
b) In how many years will $500 accumulate to $630 at 7.8% simple interest?
Answer :
Diket : - k = $500
- AC = $630
- i = 7.8% = 0.078
Dit : t ?
AC = k. (1+ it)
630 = 500 (1+0.078t)
630 = 500 + 39t
39t = 130
130 1
t= = 3 years.
39 3
10. At the certain rate of simple interest $1000 will accumulate to $1110 after a
certain period of time. Find the accumulated value of $500 at a rate of simple
interest three fourths as great over twice as long a period of time.
Answer :
Diket : - AC1 = $1110.
- k1 = $1000
- k2 = $500
3
- i2 = i1
4
- t2 = 2t1
Dit : AC2 ?
>>AC1 = k1. (1+ i1t1)
1110 = 1000 (1+ i1t1)
1110 = 1000 + 1000 i1t1
1110
i1t1 = = 0.11.
1000
>> AC2 = k2. (1+ i2t2)
 3
= 500 (1+ i1.2t1)
4
3
= 500 [1+ (0.11)]
2
= $582.5

11. Simple interest of i = 4% is being credited to a fund. In which period is this

equivalent to an effective rate of 2 ½ % ?
Answer :
Diket : - i1 = 4% = 0.04
- i2 = 2.5% = 0.025.
Dit : n?
i 0.04
in = and 0.025 =
1+ i(n−1) 1+ 0.04( n−1)
so that
0.025 + 0.001(n−1) = 0.04, and n =16.
12. A deposit of $1000 is invested at simple interest at time t = 0. The rate of simple
interest during year t is equal to 0.01t for t = 1,2,3,4, and 5. Find the total
accummulated value of this investment at time t = 5.
Answer :
AC = k1 (1+0.01t1) + k2 (1+0.01t2) + k3 (1+0.01t3) + k4 (1+0.01t4) + k5 (1+0.01t5)

>> Because k1 = k2 = k3 = k4 = k5 = 1000, so

AC = k [(1+0.01t1) + (1+0.01t2) + (1+0.01t3) + (1+0.01t4) + (1+0.01t5)]

= 1000 [(1+0.01(1)) + (1+0.01(2)) + (1+0.01(3)) + (1+0.01(4)) + (1+0.01(5))]
= 1000 (1.01 + 1.02 + 1.03 + 1.04 + 1.05)
= 1000 (1.15)
= $1150

1.5. Compound Interest

13. It is known that $600 invested for two years will earn $264 in interest. Find the
accumulated value of $2000 invested at the same rate of compound interest for
three years.
Answer :
AC1 = k. (1+ i)t
600 + 264 = 600 (1 + i)2
864
= (1 + i)2
600
864
1+i =√
600
i = 1.2 – 1
i = 0.2.
So that
AC2 = k. (1+ i)t
= 2000 (1 + 0.2)3
 = $3456
14. Show that the ratio of the accumulated value of 1 invested at rate I for n periods,
to the accumulated value of 1 invested at rate j for n periods. i > j, is equal to the
accumulated value of 1 invested for n periods at rate r. Find an expression for r as
a function of i and j.
Answer :
>>a(n)i = (1+ i)n
>>a(n)j = (1+ j)n
>>a(n)r = (1+ r)n
(1+i)n 1+i
(1+ r)n = and 1+ r =
(1+ j)n 1+ j
So that,
1+i ( 1+i ) −(1+ j) i− j
r= -1= =
1+ j 1+ j 1+ j
15. At a certain rate of compound interest, 1 will increase to 2 in a years, 2 will
increase to 3 in b years, and 3 will increase to 15 in c years. If 6 will increase to
10 in n years, express n as a function of a, b, and c.
Answer :
From the information given :
(1 + i)a = 2 >> (1 + i)a = 2 >> (1 + i) log 2 = a
3 3
2(1 + i)b = 3 >> (1 + i)b = >> (1 + i) log = b
2 2
c c (1 + i)
3(1 + i) = 15 >>(1 + i) = 3 >> log 5 = c
10 10
6(1 + i)n = 10 >>(1 + i)n = >> (1 + i) log =n
6 6

Find n:
10
n = (1 + i) log
6
= (1 + i) log 10 - (1 + i) log 6
3 (1 + i)
= (1 + i) log 5 + (1 + i) log 2 – [(1 + i) log + log 4]
2
= c + a - b – 2a
n=c–b–a
16. An amount of money is invested for one year at a rate of interest of 3% per
quarter. Let D(k) be the difference between the amount of interest carned on a
compound interest basis and on a simple interest basis for quarter k, where k =
1,2,3,4. Find the ratio of D(4) to D(3).
Answer :
D(4) : simple = 0.03.
Compound = (1.03)4 - (1.03)3
D(3) : simple = 0.03.
Compound = (1.03)3 - (1.03)2

Find the ratio of D(4) to D(3) :

4 3
D(4) ( 1.03 ) − (1.03 ) −0.03
. = = 1.523.
D(3) ( 1.03 )3−( 1.03 )2−0.03
 1.6 Present Value

17. The two sets of granparents for a newborn baby wish to invest enough money
immediately to pay $10,000 per year for four years toward college costs starting
age 18. Grandparents A agree to fund the first two payments. If the effective rate
of interest is 6% per annual. find the difference between the contributions of
Granparents A and B.
Answer :
A : 10000 [(1.06)-18 + (1.06)-19] = 6808.57
A : 10000 [(1.06)-20 + (1.06)-20] = 6059.60

Difference : 6808.57- 6059.60 = $748.97.

18. The sum of the present value of 1 paid at the end of n periods and 1 paid at the
end of 2n periods is 1. Find ( 1 + i )2n.
Answer :
PV1 + PV2 = 1
(1+i)-n + (1+i)-2n = 1
1 1
>> −n + =1
( 1+i ) ( 1+i )−2n
>> (1+i)2n - (1+i)n -1 = 0
−b ± √b 2−4 ac 1± √ 1+ 4 1± √ 5
(1+i)n = = =
2a 2 2
Because value of (1+i) must ≤1 , so that
1+ √5
(1+i)n =
2
Finally,
1+ √5 2 3+ √ 5
(1+i)2n = ( ) = .
2 2
19. It is known that an investment of $500 will increase to $4000 at the end of 30
years. Find the sum of the present values of three payments of $10,000 each
which will occur at the end of 20,40,an 60 years.
Answer :
4000 = 500(1+i)30
(1+i)30 = 8

10000(v20+ v40 + v60) = 10000(8-2/3 + 8-4/3 + 8-2)

1 1 1
= 10000 ( + + )
4 16 64
= $3281.25

1.7. The Effective rate of discount

20. a) Find d5 if the rate of simple interest is 10%.

Answer :
The formula : a(t) = 1 + it , i = 0.1.
 I 5 a ( 5 )−a (4 ) 1.5−1.4 0.1 1
d5 = = = = =
A5 a(5) 1.5 1.5 15
b) Find d5 if the rate of simple discount is 10%.
Answer :
The formula : a-1(t) = 1 - it = 1 - dt, d = 0.1
1 1
−1 −1 −
I 5 a ( 5 )−a (4 ) ( 1−0.5 ) −( 1−0.4 ) 0.5 0.6 1
d5 = = = = = .
A5 a(5) ( 1−0.5 )
−1
1 6
0.5
21. Find the effective rate of discount at which a payment of $200 immediately and
$300 one year from today will accumulate to $600 two years from today.
Answer :
200 + 300(1 – d) = 600(1 – d)2
2 + 3 – 3d – 6 + 12d – 6d2 = 0
6d2 - 9d + 1 = 0
Use the quadratic formula to find the solution.
−b ± √b 2−4 ac −(−9) ± √ (−9 ) 2−4.(6.1) 9 ± √ 57
d = = =
2a 2.6 12
Because value of d must ≤1 , so that
9− √ 57
d= = 0.1208 = 12.08%
12

22. the amount of interest earned on A for one year is $336, while the equivalent
amount of discount is $300. Find A.
Answer :
336
Amount of interest : iA = 336 → i =
A
300
Amount of discount : dA = 300 → d=
A
d 336 300 / A
i= and =
1−d A 1−300/ A

So that
336 (A – 300) = 300A
36A = 100,800
A = $2800
23. Find the present value of $5000 to be paid at the end of 25 months at a rate of
discount of 8% convertible quarterly :
a) Assuming compound discount throughout.
Answer :
25
Dik : t = 25 months. Because it is convertible quartely, so t = .
3
0.08
i = 0.08 . Because it is convertible quartely, so i = = 0.02.
4
the exact answer is
5000v25/3 = 5000(1 – d)t = 5000(1 – 0.02)25/3 = $4225.27.
 b) Assuming simple discount during the final fractional period.
Answer :
1
5000v8 (1- d) = 5000 (1 – 0.02) 8[1- ¿)(0.02)] = $4225.46.
3
d3 (i−d) 2
24. Show that =
(1−d) 2 1−v
Answer :

LHS = RHS
d3 i3 v 3
 LHS: = 2 = i3v = i2d.. and
(1−d) 2 v
( i−d )2 ( id )2 2
 RHS: = = i d.
1−v d
25. If i and d are equivalent rates of simple interest and simple discount over t
periods, show that.
i – d = idt.
Answer :
Simple interest : a(t) = 1 + it
Simple discount : a-1(t) = 1 – dt

1
1 + it =
1 – dt
1 – dt + it - idt2 = 1
it – dt = idt2
i – d = idt