
#1




Question about Problem in Finan FM book
I'm having a hard time coming up with the answer given for this problem. It's 6.6 in Finan.
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 earned 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: 1.523 Here's what I'm getting: Set A(0) = 100 i(1) compound = 3 i(2) compound = 106.09  103 = 3.09 i(3) compound = 109.2727  106.09 = 3.1827 i(4) compound = 112.55  109.2727 = 3.2773 i simple = 3 for all periods so D(4) = .2773 D(3) = .1827 D(4)/D(3) = 1.5178 
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