# 2005 - MA305/05 UNIVERSITY OF KENT FACULTY OF SCIENCE,...

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MA305/05 turn over UNIVERSITY OF KENT FACULTY OF SCIENCE, TECHNOLOGY AND MEDICAL STUDIES LEVEL C EXAMINATION COMPOUND INTEREST Friday, 20 May 2005 : 2.00 – 5.00 This paper contains THIRTEEN questions. Answer ALL questions. The marks allocated are shown at the end of each question Copies of Formulae and Tables for Actuarial Examinations are provided. Approved calculators may be used.

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MA305/05 2 1. If i = 0.04, calculate to 4 decimal places; (a) (12) 9 a ɺɺ (b) 8 20 a (c) 9 s (d) (4) 9 s ɺɺ (e) 9 ( ) I a (f) 9 ( ) Ia ɺɺ [10 marks] 2. (a) Describe how cash flows are exchanged in an “interest rate swap”. [2 marks] (b) Distinguish between the terms in each of the following pairs, in the context of derivative markets. (i) long party and short party (ii) call option and put option [4 marks] [Total 6 marks] 3. Dividends payable on a certain share are assumed to increase at a compound rate of 2.5% per half year. A dividend of £10 per share has just been paid. Dividends are paid half-yearly. Find the value of the share to the nearest penny, assuming an effective rate of interest of 6% per annum. [3 marks] 4. The following table gives information concerning an investment fund during the calendar year 2004: £ million Value of fund on 1st January 2004 3.6 Value of fund on 31st March 2004 before cash flow 4.2 Net cash flow received on 31st March 2004 0.6 Value of fund on 31st December 2004 5.4 Calculate the time-weighted rate of return for the year. [2 marks]
MA305/05 3 turn over 5. The n – year spot rate of interest, n y , is given by: 0.03 500 n n y = + for n =1, 2 and 3 Calculate the implied one-year forward rates applicable at times

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## This note was uploaded on 06/07/2011 for the course MA 826 taught by Professor Loba,millet during the Spring '11 term at Kent Uni..

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2005 - MA305/05 UNIVERSITY OF KENT FACULTY OF SCIENCE,...

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