ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.2 : (a) In the pricing of a co

ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.2 : (a) In the pricing of a coupon bond, the formula is : P = c / (1 + r) + (c + B) / [ (1 + r) (1 + r) ] for 2 years to maturity, where c = annual coupon payment (in dollars, not a percent), B = par value, P = purchase price. Five years ago someone bought a 20 year coupon bond and would like to get rid of it now : A coupon rate of 7 %, it matures in exactly 2 years, par value is $1000, current interest rate is 5 %. (i) Find the value of c. (ii) Find the value of r or interest rate. (iii) Find the value of P. (iv) Guess the formula for P when the maturity period is 3 years, if such formula for 1 year duration is P = (c + B) / (1 + r). (b) In lemma of Ito on a Forward, recall that a forward contract is priced at : ln F = ln S + rT. Find the value of F in 5 decimal points when S = $100, r = interest rate = 0.05 / year, T = duration = 1 year.

Question Posted / kangchuentat

1 Answers
1501 Views
I also Faced
E-Mail Answers

ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.2 : (a) In the pricing of a coupon bond, the formu..

Answer / kangchuentat

ACCOUNTING AND FINANCIAL ENGINEERING - ANSWER 34.2 : (a) (i) c = $1000 x 0.07 = $70. (ii) r = 5 % = 0.05. (iii) P = c / (1 + r) + (c + B) / [ (1 + r) (1 + r) ] = 70 / (1 + 0.05) + (70 + 1000) / [ (1 + 0.05) (1 + 0.05) ] = $1037.19. (iv) For 3 year maturity period prediction by induction, P = c / (1 + r) + c / [ (1 + r) (1 + r) ] + (c + B) / [ (1 + r) (1 + r) (1 + r) ]. (b) Let ln F = ln S + rT = ln 100 + 0.05. Then F = $105.127109 or F = $105.12711 (in 5 decimal points). The answer is given by Kang Chuen Tat; PO Box 6263, Dandenong, Victoria VIC 3175, Australia; SMS +61405421706; chuentat@hotmail.com; http://kangchuentat.wordpress.com.

Is This Answer Correct ?

0 Yes

0 No

Post New Answer

More Chemical Engineering Interview Questions

describe why you are interested in a career in the oil industry?

1 Answers

What is difference between overall heat transfer coefficient & individual heat transfer coefficient?

0 Answers

Question 110 - When an algebraic product is defined on the space, the Lie bracket is the commutator [x,y] = xy - yx according to Lie algebra in mathematics. If [p,x] f(x) = px f(x) - xp f(x), p = -ih d / dx, find the value of [p,x] in term of i and h.

1 Answers

What is the best way to control an oversized, horizontally oriented shell and tube steam heater?

0 Answers

What is control valve ?

2 Answers TCL,

how to calculate material balnce & energy balnce

7 Answers MahaGenco, Oil India, ONGC,

I am pg student of chemical engg. I am intrested Heat Transfer Subject . I want information about advance heat transfer related PG PROJECT

0 Answers

What kind of concerns is associated with temperature pinch points in condensers?

0 Answers

What is microstir?

1 Answers

Explain how can viscosity affect the design of a mixer?

0 Answers

Explain the common failure mechanism for above ground atmospheric storage tanks?

0 Answers

ENGINEERING MATHEMATICS - EXAMPLE 8.4 : Let 1 ^ 1 = 1, 2 ^ 2 = 4, 3 ^ 3 = 27. By using the Excel computer programming - either by Solver or Goal Seek, find the value of v for the Van der Waals equation (P - a / v ^2) (v - b) = RT where a = 18.82, b = 0.1193, P = 2, R = 0.082, T = 5000 for benzene. Describe briefly how to use Solver and Goal Seek in Excel program of computer to find the solution quickly.

1 Answers

For more Chemical Engineering Interview Questions Click Here