Actuarial Outpost Question about Problem in Finan FM book
 Register Blogs Wiki FAQ Calendar Search Today's Posts Mark Forums Read
 FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

Search Actuarial Jobs by State @ DWSimpson.com:
AL AK AR AZ CA CO CT DE FL GA HI ID IL IN IA KS KY LA
ME MD MA MI MN MS MO MT NE NH NJ NM NY NV NC ND
OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY

#1
04-26-2012, 09:05 PM
 azul673 SOA Join Date: Mar 2012 Posts: 2
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).

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

#2
04-26-2012, 09:15 PM
 Gandalf Site Supporter Site Supporter SOA Join Date: Nov 2001 Location: Middle Earth Posts: 30,477

Easy: carry i(4) compound to 2 more digits, to same accuracy as i(3) compound
#3
04-26-2012, 09:54 PM
 azul673 SOA Join Date: Mar 2012 Posts: 2

Yes, got it! Thank you!

 Thread Tools Display Modes Linear Mode

 Posting Rules You may not post new threads You may not post replies You may not post attachments You may not edit your posts BB code is On Smilies are On [IMG] code is On HTML code is Off

All times are GMT -4. The time now is 08:14 AM.

 -- Default Style - Fluid Width ---- Default Style - Fixed Width ---- Old Default Style ---- Easy on the eyes ---- Smooth Darkness ---- Chestnut ---- Apple-ish Style ---- If Apples were blue ---- If Apples were green ---- If Apples were purple ---- Halloween 2007 ---- B&W ---- Halloween ---- AO Christmas Theme ---- Turkey Day Theme ---- AO 2007 beta ---- 4th Of July Contact Us - Actuarial Outpost - Archive - Privacy Statement - Top