Answer / kangchuentat

ACCOUNTING AND FINANCIAL ENGINEERING - ANSWER 34.8 : Case (a) : An investment [-1, 1.05]. Let 1.05 = 1 (1 + r), r = 0.05 or 5 %. Case (b) : A business transaction [-3, 5, -2]. Let 5 (1 + r) = 2 + 3 (1 + r) ^ 2, 3 (1 + r) ^ 2 - 5 (1 + r) + 2 = 0. Let s = 1 + r, then 3s ^ 2 - 5s + 2 = 0 = (3s - 2) (s - 1). Then s = 2 / 3 or 1. When s = 2 / 3, r = s - 1 = 2 / 3 - 1 = - 1 / 3 or - 33.33 %. When s = 1, r = s - 1 = 1 - 1 = 0 %. Let ^ be the symbol of power. 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.

ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.15 : Based on Time Discounting of Money, let y = x / (1 + r) ^ n, where ^ = power, r = interest rate for the period in decimal value, n = number of periods, y = current value, x = future value. According to Present Value Addition Rule, the present value of a set of future payments is equal to sum for present value of each of the payments. In an engineering business, 3 future payments are to be made : $100 after 1 year; $500 after 2 years; $200 after 3 years. (a) Form an equation of y as a function of r. (b) Find the value of y in 5 decimal places if r = 8 %.

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ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.20 : Assume an engineer buys a $1 bond in period T while the nominal interest rate is R. The inflation rate at T + 1 is anticipated to be I. (a) If the bond is redeemed in period T + 1, how much money will the buyer engineer receive, in term of R, which is not affected by inflation? (b) Find the present value, PV of the proceeds from the bond, in term of R and I. (c) If the bond is redeemed in period T + 1, calculate the real growth or real value of the money that the buyer engineer will receive, in term of r = real interest rate, which is affected by inflation. (d) From the answers in (b) and (c), find the values of x, y and z in the following Fisher equation : (1 + x) = (1 + y) / (1 + z), in term of r, R and I.

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