ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.1 : (i) In the pricing of engineering bonds, 3 sets of data for Portfolio Value, Probability, Senior Tranche and Junior Tranche are : $2000, 81 %, $1000, $1000; $1000, 18 %, $1000, $0; $0, 1 %, $0, $0. By assuming independent defaults, find the price for : (a) Senior Tranche; (b) Junior Tranche. (ii) Assuming statistical independence of the values in the sample, the standard deviation of the mean (S) is related to the standard deviation of the distribution (s) by : N x S x S = s x s, where N is the number of observations in the sample used to estimate the mean. In a drug development project, let s = 1. Find the value of S if such a similar project is performed 100 times.

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ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.23 : An engineering company would like to produce 10000 units of control instruments. Let selling price per unit = $10, variable cost per unit = $2, overall fixed cost = $30000. (a) Calculate the income obtained when all units are sold out successfully. (b) Find the overall cost of production. (c) Calculate the percentage of gross profit obtained based on the answers in (a) and (b). (d) Find the minimum units that need to be sold out successfully in order to prevent losses. (e) How many minimum units of instruments that need to be produced in order to prevent losses, if all units produced are sold out successfully?

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