Basic maths help.

BenjiSayers · 15 Mar 2012 at 08:30

Hi guys & gals.

A rather embarrassing question due to how simple I know it will be in the end but I'm going to ask anyway so I at least know plus I know someone on here will know.

If you have the amount needed to invest and the amount the annuity will be per year as well as the time period how do you calculate the % rate of interest.

Second embarrassing question.

If you were to roll two six sided dice, how would you calculate the probability of neither of them landing on a 2. I think I know how to do it but would like to make sure.

Ta

shoes · 15 Mar 2012 at 08:34

Probability of one not landing on a 2 = 5/6 or 0.833. Therefore both of them would be 5/6 * 5/6 = 25/36 or 0.694 or 69.4%

Reaper 392 · 15 Mar 2012 at 08:34

its too early to work out the interest one, but for the first one you work out the probability that one of them doesnt land on a 2 (5/6) and then multiply that by the probability that the other one doesnt land on a 2 (5/6 again) and you get 25/36

for additional dice keep multiplying by 5/6

*edit*
ginger step child, etc, etc.

BenjiSayers · 15 Mar 2012 at 08:43

Cheers guys I was doing the dice one right which is nice to know. Just need to know about the % one now.

Reaper 392 · 15 Mar 2012 at 08:47

if it helps, to find out the amount of money you get from compound interest the formula is:

amount of money * (interest rate ^ number of years)

interest rate is a decimal, so for a bank giving 2% interest over a year you would use 1.02

BenjiSayers · 15 Mar 2012 at 08:53

The s*(1+r)n? r being rate and n the # of periods?

Just need to really brush up on it all as I'm struggling with my annuities etc in my exams. Which is really stressing me as on my course it was my strongest point.

Participant · 15 Mar 2012 at 11:05

If for example you invest £1000 now and receive £250 annually at the end of each year for five years...

£1000 = £250 * annuity factor

Annuity factor = 1000/250 = 4

A discount factor of 4 for over five years gives a compound interest rate of almost 8% looking at the discount tables (exact amount is 7.9336% by extrapolation).

Proof:

Year 1 - 250 * 1.079336^4 = 339.29
Year 2 - 250 * 1.079336^3 = 314.35
Year 3 - 250 * 1.079336^2 = 291.24
Year 4 - 250 * 1.079336^1 = 269.83
Year 5 - 250 * 1 = 250.00

Total receipts = 1464.71

1464.71 * 0.682672 (DCF for 5 years at 1.079336%) = £999.62.

Not sure how to get i from the annuity factor formula, as it involves rearranging negative powers, so probably something to do with lns that I can't remember.