Mathematics of Finance Exam - 19/12/2014
NAME:
Please round all your answers to two decimals and interest rates to 3 decimals (i.e.
3.147%). The exam has a total of 75 points.
Question 1 (11 points)
a) 500$ invested in a savings account accumulate to 550$ within 1.5 years. What is
the continuously compounded rate of j1of this savings account?
b) An investment gives you a yield of j2=3.5%. What is the equivalent quarterly
compounded rate j4?
c) You are investing 1000$ for 6 months at an annual simple discount rate of 5%.
How much money will be in your account at the end of 6 months?
d) A bank account pays interest at j2= 8%. At the end of each 6 months, just after
interest is credited, your bank additionally puts 20$ in your account as a bonus for
being a loyal customer. Determine the total annual e↵ective rate that is realized for
the first year if you had originally invested 600$.
Question 2 (10 points)
Show that the property of transitivity does NOT hold for equivalent dated values
at simple interest.
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