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.
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 |
Question - Chemical Engineering Material - In crystal material, hexagonal crystal system could form 4-digit index in certain direction of solid. For [1(-1)0] direction in the hexagonal crystal systems of particular catalyst applied in fume removal of incinerator, what is the four-digit index for this direction? Hint : The transformation equations between the 3-digit [h’k’l’] and the 4-digit [hkil] indices are : h = (1/3) (2h’ – k’); i = - (h + k); k = (1/3) (2k’ – h’); l = l’. A. [(-1)100] B. [1(-1)00] C. [(-1)000] D. [00(-1)(-1)] E. [(-1)0(-1)0]
Explain how can one estimate how the friction factor changes in heat exchanger tubes with a change in temperature?
Why are decomposition reactions called the opposite of combination reactions?
why is cross over inlet provided in a furnace?
i need formula for calculating discharge of river, the data i have is variation of water pressure, variation of air pressure,depth of water and length of river. please i need help
Hi, This is Naveen, plz if anybody have experience of IOCL interview, send me question.
Why do we apply on iron articles?
Name some common problems associated with dilute phase pneumatic conveying?
How LPG gets liquefied by elevating the pressure?If the pressure is increased the temperature also increases,then how LPG is in liquid form?
Part time jobs for engineer students working or studying
Which one is process and why?( evaporation, vaporization, reactor, fluid flow)
For an ideal black body (A) absorptivity = 1 (B) reflectivity = 1 (C) emissivity = 0 which is true???????