solution

Bonus Problem 2 (Optional, 25 marks) An investment fund (Fund A) has been launched at time 0. It is given that the fund earns interest at a force of interest 8t = max{0.01, 0.02t2 – 0.08t + 0.07}, where t > 0. It is given that the annual inflation rates over 1st year, 2nd year, 3rd year, 4th year and 5th year are 1%, 1.6%, 2%, 1.5% and 1.7% respectively.

(a) Calculate the real rate of interest of the investment fund over the period [1,4].
(b) An investor deposits $1600 in the investment fund at time 0. After that, the investor deposits $2000 and $1500 at time 1.5, 3.5 respectively. In addition, the investor has withdrawal an amount $1000 at time 2. Calculate the total amount of interest earned by the investor over the period (1,3] (i.e. 2nd year plus 3rd year)

 
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"

Save your time - order a paper!

Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines

Order Paper Now