Results 1 to 2 of 2

Math Help - Forces of interest

  1. #1
    Junior Member
    Joined
    Sep 2009
    Posts
    36

    Forces of interest

    Tawny makes a deposit into a bank account that credits interest at a nominal interest rate of 10% per year, compounded semiannually. At the same time, Fabio deposits 1000 into a different bank account, which is credited with simple interest. At the end of 5 years, the forces of interest on the two accounts are equal, and Fabio’s account has accumulated to Z. Determine Z.

    Here is what I have ...
    For Fabio, the accumulation function would be 1000(1 + 5i) and the force of interest at time t would be i/(1 + 5i)
    The force of interest for Tawny would be ln(1 + i) = ln(1.1) for all t
    So I think you set i/(1 + 5i) = ln(1.1) , which would give i = .1821
    Then Fabio's account would equal 1000(1 + 5*.1821) = 1910.5 at 5 years
    But our teacher said the answer is 1953 so I'm a little off somewhere and can't figure out where. Any help would be great thanks!
    Follow Math Help Forum on Facebook and Google+

  2. #2
    Member
    Joined
    Mar 2009
    Posts
    133
    You forgot to factor in that the nominal interest is compounded semi-annually. If you make this conversion, you get the answer your teacher provided;
    so the force of interst for twany should have been ln(1.1025)=0.09758 once you take into account the semi-annual compounding.

    This gives i=0.19055; 1000\cdot (1+5\cdot 0.19055)=1952.749
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Calculate interest rate based on interest in parcels
    Posted in the Business Math Forum
    Replies: 1
    Last Post: February 17th 2011, 10:38 PM
  2. Compound interest at changing interest rates
    Posted in the Business Math Forum
    Replies: 2
    Last Post: October 21st 2010, 05:55 AM
  3. forces 2
    Posted in the Calculus Forum
    Replies: 2
    Last Post: February 20th 2010, 11:32 AM
  4. Forces
    Posted in the Advanced Applied Math Forum
    Replies: 2
    Last Post: October 4th 2007, 10:55 PM
  5. Replies: 0
    Last Post: March 18th 2007, 02:31 PM

Search Tags


/mathhelpforum @mathhelpforum