IEN255 Chapter 2 Leftovers

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IEN255 Chapter 2 Leftovers

• Geometric Gradient (not linear but a percent!)
• example 2.24

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IEN255 Chapter 2 Big Hint!!!!

• table 2.3

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Composite cash flows

• Fig 2.36

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Composite cash flows

• Fig 2.37

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Unknown Interest Rate

• Example 2.27

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IEN255 Nominal Interest

• Nominal
• 18 compounded quarterly
• nominal APR
• fig 3.1

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Effective Interest

• Truly represents interest earned
• if nominal r
• M compounding periods per year
• ia (1 r/M)M - 1 (3.1)

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Effective vs Nominal Interest

• table 3.2

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Effective Interest Rates per Payment Period

• Generalized form
• if nominal r
• M compounding periods per year
• C interest periods per payment period
• K payment periods per year
• ia (1 r/M)C - 1
• (1 r/CK)C - 1 (3.2)

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Effective Rate per Payment Period

• Figure 3.3

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Continuous Compounding

• Generalized form
• I er/K - 1 (3.3)
• annual interest rate (K1)
• ia er/K - 1 (3.4)

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Periods the same or different

• Payment period compounding period
• Payment period ? compounding period

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Useful hint!!!!

• figure 3.12

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Continuous Payments

• table 3.2

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Changing Interest Rates

• Example 3.13