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Solutions to Extra Problems 5

# Solutions to Extra Problems 5 - ACTSC 231 Extra Problems 5...

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Unformatted text preview: ACTSC 231 Extra Problems 5 1. a) P = 8 : 07 = 114 : 285 71 ; P 10 = 8 : 08 = 100 : 114 : 285 71 = 8 a 10 j i + 100 v 10 Using a &nancial calculator = > i = 6 : 05% b) 8 s 10 j 5% = 8 1 : 05 10 & 1 : 05 = 100 : 623 14 i = & 100 : 0+100 : 623 14 114 : 285 71 ¡ 1 = 10 & 1 = 5 : 7886096% c) P = 8(1 : 01) : 07 & : 01 = 134 : 666 67 P 10 = 8(1 : 01) 11 : 08 & : 01 = 127 : 504 95 PV of 1st 10 dividends at 5% 8 n 1 : 01 1 : 05 + & 1 : 01 1 : 05 ¡ 2 + & 1 : 01 1 : 05 ¡ 3 + ¡¡¡ + & 1 : 01 1 : 05 ¡ 10 o = 8 & 1 : 01 1 : 05 ¡ 1 & ( 1 : 01 1 : 05 ) 10 1 & 1 : 01 1 : 05 = 65 : 015 283 = > AV of 1st 10 dividends at the end of 10 years 65 : 015 283 (1 : 05) 10 = 105 : 90305 i = & 127 : 504 95+105 : 90305 134 : 666 67 ¡ 1 = 10 & 1 = 5 : 653907% 2. a) K = S e rT = 35 e : 1(1) = 38 : 681 ; V = 0 (no cost to enter into a forward agreement) b) K t = S t e r ( T & t ) = 40 e : 1(1 & : 5) = 42 : 051 ; V t = ( K t & K ) e & r ( T & t ) = (42 : 051 & 38 : 681) e & : 1(1 & : 5) = 3 : 2055 or V t = S t &...
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