ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.3 : (a) In the M / M / 1 queue that happens with randomness, let State 0 = the queue and server are empty, State 1 = the server is in use and the queue is empty, State 2 = the server is in use and 1 is in the queue, State 3 = the server is in use and 2 in the queue. Let P (0) = probability of State 0, P (1) = probability of State 1, P (2) = probability of State 2, P (3) = probability of State 3 and so on. If c = constant, P (1) = c P (0), P (2) = c [ c P (0) ], P (3) = c { c [ c P (0) ] }, write an equation that involves P (N), P (N + 1) and c. (b) Let L = market price of risk, r = riskless rate, m = expected return, s = volatility. Given that L = (m - r) / s related to oil prices, expected return = 12 %, s = 20 %, riskless rate = 8 %, calculate the market price of risk.
ACCOUNTING AND FINANCIAL ENGINEERING - ANSWER 34.3 : (a) P (1) = c P (0), P (2) = c [ c P (0) ] = c P (1), P (3) = c { c [ c P (0) ] } = c P (2). Then P (N + 1) = c P (N). (b) Let m = 12 %, r = 8 %, s = 20 %, then L = (m - r) / s = (12 - 8) / 20 = 4 / 20 = 1 / 5. 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.
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Question 65 – A differential equation is given as y” + 5y’ + 6y = 0, y(0) = 2 and y’(0) = 3. By using Laplace transform, an engineer has correctly produced the equation L {y} = (2s + 13) / [(s + 2)(s + 3)] = A / (s + 2) + B (s + 3). (a) Find the values of A and B. (b) The inversed Laplace transform of 1 / (s + a) is given by exp (-at) where a is a constant. If the statement : L {y} = 9 L { exp (-2t) } - 7 L { exp (-3t) } is correct, find the equation of y as a function of t as a solution to the differential equation stated in the beginning of this question. When L {d} = 9 L {b} - 7 L {c}, then d = 9b - 7c with b, c and d are unknowns.
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ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.25 : (a) If an engineering company has a policy to maintain A % debt ratio, it will limit its total debt B, to A % of all company assets with total assets C. Find the value of A as a function of B and C. (b) An engineering consultancy that designs biochemical processing plants has a beginning balance in a bank of value D. The interest paid by the bank to the consultancy for the saving is E. The consultancy withdraws F amount of money from the bank to cover the project cost. (i) Calculate the end balance in a bank of the consultancy by using the symbols of D, E and F etc. (ii) Find the value of the principal due to E and F.
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