SMG FE 101 Lecture Notes - Lecture 5: Effective Interest Rate
Document Summary
You want to endow a scholarship that will begin in 3 years and grow at 2% forever. You have just taken a new job with an annual bonus that will be structured as follows: You will receive your first bonus payment of today and a payment each year beginning one year from today for the next 10 years (a total of 11 payments). Each payment after the first will be 3% larger than before. 5000/(0. 5-0. 3) x ((1-(1. 03/1. 05)^11)) = ,667 x 1. 05 = ,050. Suppose your bank account pays interest monthly with an effective annual rate of 6%. Pmt=615. 485 i=0. 4867 (since its ear, you have to do (1. 06)^(1/12) -1 = 0. 48676. Your firm is purchasing a new fleet of trucks that will last for 6 years. You can purchase the system for ,000 or you can lease the system from the manufacturer for ,000 paid at the end of each month.
