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Lecture 4 Dr Wioletta Nowak

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Fundamentals of Financial Arithmetic

Lecture 4

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• Period-certain annuity (fixed period annuity) – a type of annuity that guarantees

benefit payments for a designated period of time.

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Period-certain annuity N N N K r A K  (1 )           N r r a K ) 1 ( 1 1            N r r r a K ) 1 ( 1 1 ) 1 ( N r r K a     ) 1 ( 1

r N

r K r a      ) 1 ( 1 1 1

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Period-certain annuity ) 1 ln( 1 ln r a K r N           ) 1 ln( ) 1 ( 1 ln r a r K r N             

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Perpetuity

• A perpetuity immediate • A perpetuity due

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Example 3 – Unknown interest rate

• Capital 100 PLN, annuity 12 PLN, 10 years, Determine interest rate.

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Example 4 Annuity-immediate

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Example 5

Cytaty

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