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Sta 2191 ;Financial Mathematics Question Paper

Sta 2191 ;Financial Mathematics

Course:Financial Engineering

Institution: Jomo Kenyatta University Of Agriculture And Technology question papers

Exam Year:1

(Foundations of ) Financial Mathematics (I) Practice Questions – SET 3
These Questions are complementary to those in the course text (Finan).
Attempt the following questions individually then in groups of three. See the lecturer if you require assistance. Solutions to the computational questions are given in brackets.
1. Differentiate between simple interest and compound interest using suitable equations of value.
2. Using a suitable illustration explain how the principle of consistency is applied when accumulating an investment over a multiple time periods.
3. Where in daily life would you expect to encounter:
a. An annuity due
b. An annuity immediate
4. What is the intuitive difference with regards to the time at which periodic payments are made between:
a. ¯?
b. ¯ ¯?
c. ¨ ¯?
5. Algebraically and intuitively with the aid of a time line explain the following relationship between ¯? and ¯?:
¯? ¯? ¯?
6. Find the present value as at 1 January 2004 of a series of payments of 100 payable on the first day of each month during 2005,2006 and 2007, assuming an effective interest rate of 8% per annum. (2,986)
7. Calculate the present value of payments of 2000 at time 0,1,2,… using pa effective. (28,315.79)
8. Calculate the present value of an annuity that pays 300 pa monthly in arrears forever using an effective interest rate of 6% pa. (5,136.05)
9. The notation for an increasing continuously payable annuity is ( ¯) ¯?. It is defined as:
( ¯) ¯? S ? ¯?
Using your financial mathematics text book and your calculus text books show how this definition is arrived at.
10. The notation for a continuously increasing continuously payable annuity is ( ¯¯¯) ¯?. It is defined as:
( ¯¯¯) ¯? ? ¯ ¯?
Using your financial mathematics text book and your calculus text books show how this definition is arrived at.
11. Compare and contrast ( ¯) ¯? and ( ¯¯¯) ¯?.

Sta 2191 ;Financial Mathematics Question Paper

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