Class Notes (1,000,000)
CA (620,000)
Western (60,000)
AS (70)
AS 2053 (20)
Lecture 6

Actuarial Science 2053 Lecture Notes - Lecture 6: Promissory Note, On Convoys, Discounting


Department
Actuarial Science
Course Code
AS 2053
Professor
Steven Kopp
Lecture
6

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Example 1.3.4
A person borrows $1000 now at 10%. He is to
repay the loan with 2 payments, one at the end
of 6 months and the other at the end of the year.
The first payment is to be exactly twice as large
as the 2nd payment. If r = 10%, determine the
size of the payments, using a focal date of
(a) Now.
(b) At the end of 6 months
(c) At the end of one year
Solution to 1.3.4
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Partial Payments (section 1.4)
When a person borrows money, they can
pay back the loan, with interest, in one of
two ways:
1. With a single payment on the due date
2. With a series of partial payments during
the whole term of the loan
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next Wednesday: first in-class quiz
(such as a promissory note)
it then becomes necessary to determine the amount due on the
final date

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Two
Methods to Handle Partial Payments
Method I – Declining Balance Method
Under this method, you calculate the
outstanding balance of the loan after each
payment has been made
Example 1.4.1
A man borrows $2000 on June 1, 2014. He pays
back $800 on August 17, $400 on November 20
and $500 on February 2, 2015. What is the
balance due on April 18, 2015, which will fully
discharge (pay off) the loan, if r = 12%?
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(sometimes called
the US rule)
default method
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