ACTSC231 Chapter Notes - Chapter 1: Effective Interest Rate, Interest, Step Function
5 Oct 2013
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Chapter 1 the time value of money. Interest: definition: compensation one receives for lending asset, it doesn"t have to be monetary. I = s p (s = accumulated value p = principal) In = accumulated amount at end of period n accumulated amount at end of period n-1. In = a(n) a(n-1) t = time. Capital: definition: asset one lent out, it doesn"t have to be monetary. Principal: definition: asset one lent out (monetary). Accumulation function a(t: value at time t of invested at time 0, a(0) = 1. Amount function a(t: value at time t of an initial capital of p invested at time 0, a(0) = p, a(t) = p * a(t) Effective rate of interest i : definition amount of money that one unit of capital, invested at beginning of period will earn during the period, where interest is paid at the end of the period.
