Tutorial 8

Tutorial 8 - 07/08 Semester II THE UNIVERSITY OF HONG KONG...

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Unformatted text preview: 07/08 Semester II THE UNIVERSITY OF HONG KONG DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE STAT1802 Financial Mathematics Tutorial 8 April 11, 2008 1 Review 1.1 Book Value Book value is the present value of the remaining coupon payments and redemption value. B k = ( Fr ) a n- k | i + Cv n- k = v ( Fr + B k +1 ) . ⇒ 4 B k = B k +1- B k If 4 B k > 0, i.e., B k +1 > B k , then writing up or accumulation of discount. If 4 B k < 0, i.e., B k +1 < B k , then writing down or accumulation of premium. We remark here that |4 B k | is the amount of writing-up/writing-down in the ( k + 1)th coupon. 1.2 Bond Amortization Schedule Every coupon consists of interest and principal adjustment amount (writing-up or writing- down). Fr = I k +1 + P k +1 Interest at time k + 1 is based on the book value at time k , that is, I k +1 = B k i = ‡ Fra n- k | + Cv n- k · i = Fr- C ( g- i ) v n- k (1) and the writing-up or writing-down is the remainder of the coupon....
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This note was uploaded on 04/17/2011 for the course STAT 1802 taught by Professor Dr.k.c.yuen during the Spring '08 term at HKU.

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Tutorial 8 - 07/08 Semester II THE UNIVERSITY OF HONG KONG...

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