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September 4th, 2012, 10:05 AM   #1
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Basic financial math problems

Here are a couple questions that are baffling me right now, please help...
the questions are as they appear
1. The sum of the present value of $1 paid at the end of 'n' periods and $1 paid at the end of '2n' periods is 1. Find (1+i)^(2n)

2.If $200 grows to $500 over 2n years, what will $700 grow to over 5n years?

This is only the beginning of the class, all we learned are some basic so basic concepts only if please.
I would greatly appreciate solutions but if you want to give me clues that will get me started, please do so. Thanks
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September 4th, 2012, 10:47 AM   #2
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Re: Basic financial math problems

Quote:
Originally Posted by cmple
1. The sum of the present value of $1 paid at the end of 'n' periods and $1 paid at the end of '2n' periods is 1. Find (1+i)^(2n)
Let x = (1+i)^n. Then you have a quadratic equation in x to solve. You're asked to find x^2.

Quote:
Originally Posted by cmple
2.If $200 grows to $500 over 2n years, what will $700 grow to over 5n years?
Let x = (1+i)^n. Then you have a quadratic equation in x to solve. You're asked to find x^5.
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September 4th, 2012, 05:58 PM   #3
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Re: Basic financial math problems

thanks for the response, but I'm as clueless as I was before.
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September 5th, 2012, 06:14 AM   #4
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Re: Basic financial math problems

I'm sorry to hear that. What don't you understand?
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September 5th, 2012, 09:27 AM   #5
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Re: Basic financial math problems

basically the whole method is what I don't understand. I tried to think about what you gave me but nothing clicked.
one of my classmates said that he did not need to use any sort of fin math formula so I tried doing it just through basic math and could noy get anywhere...
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September 6th, 2012, 05:49 AM   #6
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Re: Basic financial math problems

Quote:
Originally Posted by cmple
Here's a couple questions that are baffling me right now, please help...the questions are as they appear:

1. The sum of the present value of $1 paid at end of 'n' periods and $1 paid at end of '2n' periods is 1. Find (1+i)^(2n)

2.If $200 grows to $500 over 2n years, what will $700 grow to over 5n years?

This is only the beginning of the class, all we learned are some basic so basic concepts only if please.
I would greatly appreciate solutions but if you want to give me clues that will get me started, please do so. Thanks
Well, you're not telling us WHAT you learned.
Were these problems given to you by your teacher?
If so, are you saying your teacher did not teach properly?

If question#2 was worded this way (make n=5) :
$200 grows to $500 over 10 years.
At the same interest rate, what will $700 grow to over 25 years?
Are you able to handle that?
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September 6th, 2012, 06:05 AM   #7
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Re: Basic financial math problems

Quote:
Originally Posted by cmple
one of my classmates said that he did not need to use any sort of fin math formula ...
If that classmate jumped in the lake, would you jump too?....get my drift?

The ONLY way I can see not needing fin math formulas is in #2,
and ONLY if the interest is truly SIMPLE interest;
like $200 to $500 over 2 years means interest of $150 per year; no compounding.
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September 6th, 2012, 06:37 AM   #8
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Re: Basic financial math problems

You can certainly get it with basic algebra not using financial/exponential calculations. But if you know how to solve it with exponentials that's fine too. Do what you have to.
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September 6th, 2012, 03:43 PM   #9
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Re: Basic financial math problems

Quote:
Originally Posted by Denis
Quote:
Originally Posted by cmple
Here's a couple questions that are baffling me right now, please help...the questions are as they appear:

1. The sum of the present value of $1 paid at end of 'n' periods and $1 paid at end of '2n' periods is 1. Find (1+i)^(2n)

2.If $200 grows to $500 over 2n years, what will $700 grow to over 5n years?

This is only the beginning of the class, all we learned are some basic so basic concepts only if please.
I would greatly appreciate solutions but if you want to give me clues that will get me started, please do so. Thanks
Well, you're not telling us WHAT you learned.
Were these problems given to you by your teacher?
If so, are you saying your teacher did not teach properly?

If question#2 was worded this way (make n=5) :
$200 grows to $500 over 10 years.
At the same interest rate, what will $700 grow to over 25 years?
Are you able to handle that?
I sort of see your method there... i=.0959 if you assume n=5 and that it is a compound interest (so I used 500=200(1+i)^10 and solved for i). however, if you assume a different n, then 'i' would change, making the answer different. Im not sure if this is what you meant though.
when i write down the problem i come up with: 500=200a(2n) >> not knowing whether it is simple or compound, I cant really get the whole equation and I would have three unknowns > n,i, and what 700 becomes after 5n years. knowing that, I would not know how to solve it through algebra.
if i go about it this way saying: A200(2n) = 500 or a(2n) = 2.5
with that I assume I could use: i[t1,t2]= [a(t2) - a(t1)] / a(t1) >> this being the effective interest rate with t2=2n and t1=0. problem is that this 'i' is only for that specific interval, and could not be used with any other different intervals. well at least that is what i think and that is where i am stumped. I don't know what else to use.

what we have learned before he gave the assignment are the accumulation/amount functions of simple and compound interest, the one above and some others that were derived from those formulas.
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