Interested to Buy Any Domain ? << Click Here >> for more details...
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.
- 1 Answers
- 2334 Views
- I also Faced
- E-Mail Answers
Answer Posted / 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 View All Answers
Why are decomposition reactions called the opposite of combination reactions?
y we do not differ b/w atomic mass and atomic wieght? from engrtauseef2008@gmail.com
What is the import procurement cycle? What are the customization steps in sap?
Re: Sugar Cane Bagasse What are the 1. Specific Heat of Bagasse at 50% moisture, 40% moisture and 25% moisture? 2. What is bu;lk density of bagasse at 50% moisture, 40% moisture and 25% moisture? 3. What is specific gravity of bagasse at 50% moisture, 40% moisture and 25% moisture? 4. What is the specific heat of flue gases generated from boiler fuelled by bagasse? 5. What is the specific gravity of flue gases generated from boiler fuelled by bagasse?
What are the three classes of organic solvents?
Are some heat transfer services more prone to tube vibration that others for a shell and tube exchanger?
How to size the cooling tower sump / basin for any given circulation rate? What is the guideline?
any meter avilable for measureing the Transformer Losses. ( like Voltmeter for voltage & ammiter for currenr )if yes plz give the make & supplier address, Email, Phone number.
What is vapour flooding and liquid floodin in distillation?
hi sir/madam i need placement paper of last years of DRDO in chemical sream...... send me the question paper as soon as possible on my email address praveen.zone@gmail.com
What is the definition of 'good' cooling tower water?
In case of welded vessels why is stress relieving in the form of post-weld treatment necessary?
How can one determine if a particular solid can be fluidized as in a fluidized bed?
Explain the method adopted to minimize shell side pressure drop in a shell?
What is a barometric condenser?
