An investment of $1 will double in 27.72 years at a force of interest δ.

An investment of $1 will
increase to 9.55 in n years at a nominal rate of discount numerically equal to δ and convertible
quarterly. Calculate n.

𝐴(𝑡) = 𝐴(0)𝑒 𝛿𝑡

(1 + 1) = 𝐴(0)𝑒 27.72𝛿

2 = 𝐴(0)(1.093 × 1012 )𝛿

𝛿 = 0.025
𝑑 4 4𝑛
𝑃𝑉 = 𝐹𝑉(1 − )
4
0.025 4𝑛
9.55−1 = (1 − )
4
4𝑛 = 359.92
𝑛 = 90

The rate of discount per annum convertible quarterly is 8%. Calculate the equivalent rate of interest
per annum convertible half-yearly.
𝑖𝑚 𝑚 𝑑𝑛
(1 + ) = (1 − )−𝑛
𝑚 𝑛
𝑖2 2 0.08 −4
(1 + ) = (1 − )
2 4
𝑖2 2
(1 + ) = 1.084
2
𝑖2
1+ = 1.04
2
𝑖 2 = 0.08247 = 8.247%

A loan of $1000 is made at a discount rate of 12% compounded semiannually. The loan is to be
repaid with three payments: $400 at the end of the first year, $800 at the end of the fourth year and
the balance at the end of the tenth year. Calculate the amount of the final payment.
0.12 2×10
1000 = 𝐹𝑉1 (1 − )
2
𝐹𝑉1 = 3447.01
0.12 18
400 = 𝐹𝑉2 (1 − )
2
𝐹𝑉2 = 1218.31
0.12 12
800 = 𝐹𝑉3 (1 − )
2
 𝐹𝑉3 = 1680.95
𝐵𝑎𝑙𝑎𝑛𝑐𝑒 = 𝐹𝑉1 − 𝐹𝑉2 − 𝐹𝑉3 = 3447.01 − 1218.31 − 1680.95 = 547.75 = 548

0.04, 0 < 𝑡 ≤ 5
The force of interest, δt is: 𝛿𝑡 = {{
0.01(𝑡 2 − 𝑡), 𝑡 > 5

Calculate the present value of a unit sum of money due at time t = 10.
𝑡
𝐴(𝑡) = 𝐴(0)𝑒 ∫0 𝛿𝑟 𝑑𝑡
10
(𝑡 2 −𝑡)𝑑𝑡
1 = 𝐴(0)𝑒 0.01 ∫5
1 3 1 2 10
1 = 𝐴(0)𝑒 0.01[3𝑡 − 𝑒 ]5
2

𝐴(0) = 0.078

0.078 = 𝐴′(0)𝑒 0.04×5

𝐴′ (0) = 0.0645
A payment of $3000 is due at time 15 years. Between times 0 to 4 years, the annual effective
interest rate is 6%. Between times 4 to 8 years, the annual effective discount rate is 8% and between
times 8 to 15 years, the force of interest is 4%.

Calculate the present value of the payment at time 0.

𝐴(𝑡) = 𝐴(0)𝑒 𝛿𝑡

3000 = 𝐴(0)𝑒 0.04×7

𝐴(0) = 2267.35
𝑃𝑉 = 𝐹𝑉(1 − 𝑑)𝑡

𝑃𝑉 = 2267.35(1 − 0.08)4

𝑃𝑉 = 1624.31
𝐹𝑉 = 𝑃𝑉(1 + 𝑖)𝑡

1624.31 = 𝑃𝑉(1 + 0.06)4

𝑃𝑉 = 1286.6 = 1287
The effective rate of discount is 6%. Linda will receive $500 four years from today, $1,000 eight years
from today, and $2,000 twelve years from today. Find the combined present value of her three
future cash flows.

𝑃𝑉1 = 500(1 − 0.06)4 = 390.37

𝑃𝑉2 = 1000(1 − 0.06)8 = 609.57

𝑃𝑉3 = 2000(1 − 0.06)12 = 951.84

𝑃𝑉𝑡𝑜𝑡𝑎𝑙 = 390.37 + 609.57 + 951.84 = 1951.78