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Name:
 R M 410: Financial Mathematics
Homework #1
Due Tuesday, September 5, 2017

1. The problem is to prove that limn nrn = 0 for 1 < r < 1. Do this in three steps:
(a) For r = 0, the result is obvious.
(b) For 0 < r < 1, use lHospitals rule to verify limn nrn = 0.
(c) For 1 < r < 0, note that n|r|n nrn n |r|n . Now use part (b) to verify
limn nrn = 0 for 1 < r < 0.

2. Evaluate 2(1.05)1 (1.07)2 +3(1.05)2 (1.07)4 4(1.05)3 (1.07)6 +5(1.05)4 (1.07)8 +

Hint: Use the result that k 2
P
k=0 (k + 1)r = 1/(1 r) , if 1 < r < 1.

3. An investment at t = 0 grew to $7800 at t = 5. If a(t) = 1 + t2 , what will the

accumulated value be at t = 7?

4. An investment earned interest of $1900 in the 10th year. If a(t) = 1 + t2 , find the
amount of interest that was earned in the 5th year.

5. An accumulation function is a second degree polynomial. If it takes an investment 3

years to double and 5 years to triple, how many years does it take for the investment
to quadruple?

6. Under simple interest at 5% money will double in a certain number of years. Under
compound interest at rate i money will triple in the same number of years. Find i.

7. Fund A accumulates at 9% and Fund B accumulates at 8%. At the end of 8 years the
amount in Fund B is three times the amount in Fund A, and at the end of 10 years
the total in the two funds is $52,000. How much is in Fund A at the end of 15 years?
(Unless otherwise stated, assume money accumulates at compound interest.)

8. $1000 is deposited in fund A which earns interest of 12% annually. At the same time
$2000 is deposited in fund B which earns interest of 6% annually. In how many years
will the balance in fund A equal twice the balance in fund B?

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 9. Over the past five years a mutual fund experienced annual effective growth rates on
investments of 10%, 16%, -7%, 4%, and 32%. The fund manager suggests the fund
can advertise an average annual growth rate of 11% over the past five years since
(10+167+4+32)/5 = 11. If you had invested money at the beginning of the five-year
period, liquidated your investment after five years, and had made no further deposits
or withdrawals, what effective annual growth rate would you have experienced? Note:
growth rate = interest rate.

10. Assume compounded and i > 0. If $1 grows to $K in x years at rate i per year, and
$1 grows to $K in y years at rate 2i, prove that y > x/2. This result says that if we
double the rate of interest, it takes more that half the amount of time to reach the
same accumulation.
x/2
Hint: (1 + i)x = (1 + i)2

.

11. In Excel,

(a) draw a graph for the function f (x) = x3 2x + 1 on the range 2 x 2, and
(b) record a macro using relative reference for EVERTHING you do in part a, name
your macro as graph and assign to it a shortcut Ctrl + g. In order to save the
macro in your workbook, you will need to go to File -> Save as, click the Save as
type dropdown arrow, and save your file as an Excel Macro-Enabled Workbook.

Upload your file by 1 pm on the due date to the dropbox folder HW1 Excel question
dropbox on CANVAS. Name your file as your first name-your last name.
Do NOT make multiple submissions; only your first one will be graded.

Note: Your macro will be tested by the grader; including malware programs in your
macro will result in disciplinary actions.