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

by OC775254

This

**preview**shows pages 1-3. to view the full**11 pages of the document.**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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Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

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

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

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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