MATH 2FM3 Lecture Notes - Lecture 2: Discounting, Promissory Note, Growth Factor
22 Oct 2015
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Math 2fm3, fall 2015, lecture 2 (section 1. 1. continued) 1. 1. 3 simple interest: for a short period of time, simple interest is often considered, instead of compound interest. At an interest rate of i per year, 1 grows to 1 + i at the end of one year. 0: in practice some short term contracts interest rate is calculated on the basis of simple interest. (example: promissory note (see ex 1. 4 in the textbook)). 1. 1. 5 accumulated amount function: recall a(t) = a(0)a(t) = a(0)(1 + i)t is the accumulated amount function of an initial investment of a(0) at time t given interest rate i per period (with compounding). A(t2) a(t1) = the amount of interest earned from t1 to t2. From the accumulated amount function we can nd the interest rate (cid:20) a(t) (cid:21) 1 t 1. A(t) = a(0)(1 + i)t, so, (1 + i)t =
