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a) A company is due to receive a payment of £500,000 from a customer in 6 months’ time.
To smooth its cashflows, the company would prefer to receive the payment
immediately, and has agreed to transfer its entitlement to this payment to a third
party (a discount house) in return for an immediate payment calculated using a rate
of commercial discount of 16% per annum.
How much will the immediate payment made by the discount house be?
b) An investor puts £5,000 in a savings account that pays 10% simple interest at the end
of each year. Compare how much the investor would have after 6 years if the money
i. Invested for 6 years
ii. Invested for 3 years, then immediately reinvested for a further 3 years.
c) £250 is invested in a savings account. The nominal rate of interest convertible monthly
for the first 3 months is 18% and the nominal rate of interest convertible quarterly for
the next 9 months is 20%. How much is in the account at the end of the year?
d) You have deposited $1000 in a savings account today, and the interest rate is
5% per year. What is the future value of this cash flow 3 years from today
e) The force of interest is given by:
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