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					            Math 7780: Financial Mathematics
                               HW #2

           Assignment for Wednesday, February 7, 2007

1. Suppose, beginning now, the rate of inflation is 3% for the next 12
   months, 5% for the following year, and 8% the year after that (assume
   these are the effective rates). What would be the equivalent in 3 years
   of $100 today? In other words, in three years, what dollar amount
   would have the same purchasing power then as $100 today?

2. What is the equivalent today of $100 in three years?

3. Suppose the inflation rate is 2% every month. What is the yearly
   inflation rate?

4. Suppose the inflation rate is constant for every month. The yearly rate
   comes out to be 24%. What is the monthly rate?

5. Suppose you borrow $10,000 to pay back in weekly installments over
   2 years (104 weeks). The lender charges 10% compounded weekly.
   How large is the weekly installment?

6. A car dealer loans you $10,000 so that you can buy a car, and says that
you will need to pay $250 a month for 60 months to pay off the loan. Is
this a fair offer? Explain your answer carefully.

				
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