Scribd
Upload
20 views

Assignment - Financial Mathematics - 12032024

This document contains 7 questions regarding financial mathematics concepts such as net present value, bond valuation, yield curves, and rates of return. Questions involve calculating durations, modified durations, forward rates, yields to maturity, and holding period returns for various bonds and investment projects.

Uploaded by

dqvietd2v
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
20 views

Assignment - Financial Mathematics - 12032024

This document contains 7 questions regarding financial mathematics concepts such as net present value, bond valuation, yield curves, and rates of return. Questions involve calculating durations, modified durations, forward rates, yields to maturity, and holding period returns for various bonds and investment projects.

Uploaded by

dqvietd2v
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

ASSIGNMENT OF FINANCIAL MATHEMATICS

Due date: March 26th, 2024

Question 1.
Eric makes deposits into a retirement fund earning an annual effective rate of 8%. The
first deposit of $1,000 is made on his 38th birthday and the last deposit is made on his
64th birthday. Every year his deposit increases by 4%. When he attains age 65, he will
withdraw all the money in the retirement fund to purchase an annuity-immediate which
provides him withmonthly payment for 25 years. The nominal rate of interest on the
annuity is convertible monthly at 7%. Find the amount of each monthly payment.
Question 2.

A company is considering a project that will require an initial investment of 1000 and
additional investments of 300 and 100 at the end of years one and two, respectively. It
is expected that revenue from this project will be 300 per year for five years, beginning
one year from the initial investment. Assuming an annual effective rate of 15%,
calculate the net present value of this project
Question 3.
a. Calculate the Macaulay duration for an 9% annual coupon bond with 5 years left to
maturity and a face value of 1000, if the bond's yield to maturity is 10%.
b. What is the Modified duration of the above bond?
c. If the 5-year yield to maturity were to suddenly increase from 10% to 11%, what
would you expect the bond price to be after the yield increases to 10.30%?
Question 4.
A 10-year bond has face value $1000, but will be redeemed for $1100. It pays
semiannual coupons, and is purchased for $1135 to yield 12%, convertible
semiannually. The first coupon is X, and each subsequent coupon is 5% greater than the
preceding coupon. Find the value of X.
Question 5. Fill in the following table of forward rates of interest:

Spot rate Forward rate it,t+k


t
sn k=1 k=2 k=3 k=4 k=5 k=6 k=7 k=8
1 5.0%
2 5.2%
3 5.4%
4 5.6%
5 5.7%
6 5.5%
7 5.3%
8 5.1%

Question 6.
A $1,000 par value 10-year bond with redemption value of $1,080 and coupon rate of
8% payable semiannually is purchased by an investor at price P.
(a) Find the yield to maturity of the bond if P = $1,000.
(b) Find the yield to maturity of the bond if P = $1,080.
(c) Determine P if the yield to maturity of the bond is 8% per annum convertible
semiannually
Question 7.
A $200 par value non-callable bond has 4% semiannual coupons and is redeemable at $206
after 20 years. The bond is currently selling at $205.
(a) Find the yield to maturity of the bond convertible yearly.
(b) If coupons can be reinvested at 4.5% compounded semiannually, find the 20-year
holding-period yield convertible yearly. Compare this with the answer obtained in (a)
--- The end ---

You might also like