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
2259 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

Explain what are the assumptions made on conservation equation?

0 Answers

ENGINEERING ECONOMY - EXAMPLE 7.1 : In engineering economy, the future value of first year is FV = PV (1 + i). For second year it is FV = PV (1 + i) (1 + i). For third year it is FV = PV (1 + i) (1 + i)(1 + i) where FV = future value, PV = present value, i = interest rate per period, n = the number of compounding periods. By induction, what is the future value of $1000 for 5 years at the interest rate of 6 %?

1 Answers

an anybody provide me the HPCL apptitude papers?am having the test on this feb 27th 2008 so plz [Send This Question to Your Friend] please send me hpcl placement papers both technical and apptitude.. please

3 Answers HPCL, NTPC,

How can wet carbon dioxide be responsible for a corrosion problem in iron-containing metals?

0 Answers

UNIT OPERATION - EXAMPLE 9.3 : In the distillation of binary systems by Mc Cabe Thiele method, the equation for the line of top section is given by y = [ R / (R + 1) ] x + XD / (R + 1). 2 points on the line are (0.99, 0.99) and (0, 0.36). Find the reflux ratio of R and XD.

1 Answers

What are the uses of quicklime?

0 Answers

why GOD ALMIGHTY has made every living thing by water?

5 Answers

SSR meanig

1 Answers

Question 71 - (a) The byte is the basic building block of computer data used in chemical engineering process simulation where 16 bits make a word, 4 bits make a nibble, 32 bits make a quad word and 8 bits make a byte. Then how many nibbles are there in a megabytes? (b) In computer data items, let : 1 bit - counts from 0 to 1, 8 bits - counts from 0 to 255, 16 bits - counts from 0 to A. What is the value of A? (c) In a binary system of 4 bits, if 1100 = 12, 1101 = 13, 1110 = 14, 1111 = 15, B = 16, then guess the value of B. (d) By using any form of tools, find the exact value of 2 power 64 or 2^64.

1 Answers

Do you have recombinant protein expression experience? Explain?

0 Answers

What are the specialized crushing methods?

0 Answers

What are the steps taken to operate a tank-blanketing valve?

0 Answers

For more Chemical Engineering Interview Questions Click Here