Basic Math & Time Value of Money: Exercises
1. Continuous compounding. Assume you have a savings account that offers continuous compounding at nominal_annual_rate.
If you make an initial deposit, P, how much money will you have in the account after 6 months? 12 months? Recall that exp()
implements the exponential function in R.
nominal_annual_rate <- 0.05
P <- 100
# Compute balance after 6 months.
six_month_balance <- ___ * exp(___*nominal_annual_rate)
# Compute balance after 12 months.
twelve_month_balance <- ___
# Compute balance after 6 months.
six_month_balance <- P * exp(0.5*nominal_annual_rate)
# Compute balance after 12 months.
twelve_month_balance <- P * exp(nominal_annual_rate)
test_error()
test_object("six_month_balance", incorrect_msg="Remember that the time interval should be given in fractions of a year.")
test_object("twelve_month_balance", incorrect_msg="Did you remember to multiply by the initial deposit, `P`?")
success_msg("Good job!")
Did you remember to multiply by the initial deposit,
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