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Old 07-07-2017, 12:24 AM
gpecci gpecci is offline
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Default Annuity Question - Unknown Interest rate

Question:
Using an annual effective interest rate j>0, you are given:
(i) The present value of 2 at the end of each year for 2n years, plus an additional 1 at the end of each of the first n years, is 36
(ii) The present value of an n-year deferred annuity-immediate paying 2 per year for n years is 6.
Calculate j
a) .03 b) .04 c) .05 d) .06 e) .07
I understand the solution listed, but why is the way I solved the question giving me a different answer?

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Old 07-07-2017, 02:25 AM
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Your second line should be 3 angle n + 2 *v^n * angle n.
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Last edited by Breadmaker; 07-07-2017 at 12:20 PM.. Reason: Forgot the 2.
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Old 07-07-2017, 09:35 AM
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NattyMo NattyMo is offline
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Draw a timeline. It helps visualize how the payments are being made.

Looking at your work ...



... does not follow from ...



There are several ways to approach this, aside from the answer you provided.

After drawing a timeline, here's how I approached it:

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Old 07-08-2017, 12:30 PM
textgameno100 textgameno100 is offline
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Correct:
line 2: PV = 2(a_2n) + (a_n)
line 3: PV = 3(a_2n) - (a_n)*v^n
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