2005_solutions

2005_solutions - MA305/05 MA305/05 Solutions 1. &(12)...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
MA305/05 MA305/05 – Solutions 1. a) (12) (12) 9 9 1.021537 7.4353 7.5954 i a a d = = × = [1.5] b) ( ) ( ) 20 28 8 28 8 8 1.019869 16.6631 6.7327 10.1277 i a a a a a δ = - = - = × - = [1.5] c) 9 9 1.019869 10.5828 10.7931 i s s = = × = [1.5] d) (4) (4) 9 9 1.024877 10.5828 10.8461 i s s d = = × = [1.5] e) ( ) 9 9 9 9 1.04 7.4353 9 0.70259 35.9349 0.039221 a v Ia - × - × = = = [2] f) ( ) 9 9 9 9 1.04 7.4353 9 0.70259 36.6440 0.038462 a v Ia d - × - × = = = [2] 2. (a) One party agrees to pay a floating interest rate and receive a fixed interest rate and the other party agrees to pay a fixed interest rate and receive a floating interest rate. The fixed payments are at a constant rate for an agreed term and the floating payments will be linked to the level of a short-term interest rate. [2] (b) i) Both relate to a forward or futures contract. The long party agrees to purchase the underlying asset and the short party agrees to deliver the underlying asset. [2] ii) Both relate to the right, but not the obligation, to trade a specified asset on a set date (or dates) in the future for a specified price. Call option is the option to buy and put option is the option to sell. [2] 3. Working in half yearly time periods, then value of share is 2 3 0.5 1.5 ' 10 1.025 10 1.025 10 1.025 ........ 1.06 1.06 1.06 10 10 10 £2246.32 ' .0044517 i a i × × × + + + = = = = where i’ = (1.029563014/1.025)-1 = 0.004451721 [3]
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
MA305/05 4. TWRR is i where 4.2 5.4 1 31.25% 3.6 4.8 i i + = × = [2] 5. We can find forward rates 1,1 f and 2,1 f using the spot rates 1 2 , y y and 3 y : 2 2 1 1,1 2 1,1 1,1 3 2 3 2 2,1 3 2 2,1 2,1 (1 ) (1 )(1 ) 1.034 1.032(1 ) 3.6% (1 ) (1 ) (1 ) 1.036 1.034 (1 ) 4.0% y y f f f y y f f f + = + + = + = + = + + = + = [1.5] [1.5] 6. (a)
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

2005_solutions - MA305/05 MA305/05 Solutions 1. &(12)...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online