1 of 8 0-day streak

Model and interpret a periodic cash-flow recurrence

Question 1 of 8

Calculator allowed

Consider the community reserve fund, modelled over equal periods of one half-year

$V_n$ is the balance, in dollars, after $n$ half-years. The initial balance $V_0$ is recorded before the first period's interest

The initial balance is $11,000. The nominal annual interest rate is 7.5%, compounded half-yearly

A regular addition of $1,250 is made at the end of each half-year

Interest is applied first. The regular cash flow is made at the end of each half-year; payments per year and compounding periods per year are both 2

V_{n+1}=R V_n+sD

(a)3 marks

Fill the three values that define the cash-flow recurrence

$V_0$ ($) $R$ $D$ ($)

(b)1 mark

Select the cash-flow term used after interest

-D

+D

State the per-half-year rate as a percentage, without rounding

$r_{half-year}$ (%)

Format: exact value

(d)1 mark

Convert the period rate back to a nominal annual rate. Give an exact value

Nominal annual rate (%)

Format: exact value

(e)1 mark

Which financial description agrees with the recurrence?

The reserve balance receives a regular addition after interest in each period

The regular addition is made before interest is applied to the balance

The fixed cash-flow term is the interest amount for every period