A house is rented at $20,000 annually, paid at the start
of the year. The rent increases at 3% pa effective, and
interest rates are 4% pa effective. Calculate the present
value of the next 20 years re
UNIVERSITY OF TORONTO SCARBOROUGH
Department of Computer & Mathematical Sciences
December 2013 Final Examination
ACTB40 H3F
Fundamentals of Investment & Credit
Duration: 3 hours
Examination aids allow
ACTB40
Fundamentals of
Investment & Credit
Lecture 6
1
Annuity Decomposition
We can break down annuity into 2 or more
smaller components (annuities) and combine
them to get an equivalent accumulation
ACTB40
Fundamentals of
Investment & Credit
Lecture 3
1
Dated Cash Flows
Many financial investments/transactions
involve cash-flows (CF) at different times
E.g. (Simple pension) Pay $5 now & $10 in 1 y
ACTB40
Fundamentals of
Investment & Credit
Lecture 2
1
Accumulated Amount Function
Simple Interest: A(t ) A(0) (1 i t )
Compound Interest: A(t ) A(0) (1 i )t
Time t measured in multiples of interest p
ACTB40
Fundamentals of
Investment & Credit
6. Term Structure
1
Term Structure of Interest
Rates
Cashflows:
(P)
F
Consider ZCB w/ maturity t,
time 0
t
face value F, and price P:
ZCB yield to maturity t
ACTB40
Fundamentals of
Investment & Credit
5. Measures of Return
1
Comparing Investments
Consider an investment, represented by a
stream of (+ve or ve) cashflows C0,C1,Cn
Cashflow:
C0
C1
C2
Cn1
Cn
0
1
ACTB40
Fundamentals of
Investment & Credit
7. Cashflow Duration
1
Fixed-Income Prices
Consider fixed-income security: investment
whose future cashflows (time & amounts) are
known in advance; e.g. bond
ACTB40 F17
Quiz 4 - TUT01
Name (f,l):
ID #:
1. (10 points) An indexed annuity-immediate makes monthly payments over 10 years. The
payments increase by 2% every year, starting with $1,000 in the first
ACTB40 F17
Quiz 9 - TUT01
Name (f,l):
ID #:
1. (10 points) Consider a 20-year callable bond with face value of $100 and $3 annual
coupons. The bond can be redeemed on any coupon date from the 5th to t
ACTB40 F17
Quiz 10 - TUT01
Name (f,l):
ID #:
1. (10 points) Consider the following term structure of interest rates, where all rates are
nominal annual, compounded semi-annually.
term (yrs) rate
.5
2%
University of Toronto Scarborough
Department of Computer & Mathematical Sciences
ACTB40H3 Fundamentals of Investment & Credit
Term Test 2
November 15, 2017
Duration: 50 minutes
Examination aids allowe
Surprise Quiz 3: STAB57 - Introduction to Statistics
FIRST NAME:
LAST NAME:
STUDENT NUMBER:
TUTORIAL:
Sales growth. A marketing researcher studied annual sales of a product that had been
introduced 10
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A house is rented at $20,000 annually, paid at the start
of the year. The rent increases at 3% pa effective, and
interest rates are 4% pa effective. Calculate the present
value of
UNIVERSITY OF TORONTO SCARBOROUGH
Department of Computer and Mathematical Sciences
ACTB40 Fundamentals of Investment & Credit
Sample Test
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Family name, comma, personal names:_
Your student ID:_
Your signature: _
UNIVERSITY OF TORONTO
Faculty of Arts and Science
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ACT240 Sum201
ACTB40
Fundamentals of
Investment & Credit
Lecture 5
1
Inflation Rate
General increase in price of products &
services measured by annual inflation rate (r)
Calculated as annual rate of change of Cons
ACTB40
Fundamentals of
Investment & Credit
Lecture 4
1
Nominal Rates
In practice, many interest rates are quoted in
a format different than compound rates
E.g. Credit cards typically quote their APR (
ACTB40
Fundamentals of
Investment & Credit
Lecture 7
1
Annuity Due
Another standard form of annuity is one
where payments occur at the beginning of
each period. This is called an annuity-due:
1
1
1
1
ACTB40
Fundamentals of
Investment & Credit
Lecture 22
1
Fixed-Income Prices
Consider fixed-income security: investment
whose future cashflows (time & amounts) are
known in advance; e.g. bonds
Given cu
ACTB40
Fundamentals of
Investment & Credit
Lecture 23
1
Duration & Term Structure
D/DM measures price sensitivity w.r.t. YTM
In general, however, fixed-income prices
depend on every spot rate until th
ACTB40
Fundamentals of
Investment & Credit
Lecture 20
1
Example
Assume term structure (normal):
Maturity
1yr
1 yr
2yr
Spot Rate
yr
8%
9%
10%
11%
Find prices of 2-yr bonds with coupon rates of 5%
& 10
ACTB40
Fundamentals of
Investment & Credit
Lecture 21
1
Arbitrage
Arbitrage is a transaction that has only
positive cashflows (requires no money)
E.g.
0
1
2
3
Arbitrage
cashflows:
0
0
+C
+C
0
0
0
+C
0
ACTB40
Fundamentals of
Investment & Credit
Lecture 18
1
Internal Rate of Return
For the 3 examples without a unique,
valid IRR, we had: C 1.33 (A)
2
C0 1, C1 2.3, & C2 1.32 (B)
C 1.2825 (C)
2
Even th
ACTB40
Fundamentals of
Investment & Credit
Lecture 19
1
Term Structure of Interest
Rates
Cashflows:
(P)
F
Consider ZCB w/ maturity t,
time 0
t
face value F, and price P:
ZCB yield at maturity t is cal
ACTB40
Fundamentals of
Investment & Credit
Lecture 17
1
Comparing Investments
Consider an investment, represented by a
stream of (+ve or ve) cashflows C0,C1,Cn
C0
C1
C2
Cn1
Cn
0
Cashflow:
1
2
n1
n
tim
ACTB40
Fundamentals of
Investment & Credit
Lecture 16
1
Callable Bond
Issuer can redeem bond (pay back face value
& stop coupons) at anyone of a range of predetermined dates
Choice of redemption date
ACTB40
Fundamentals of
Investment & Credit
Lecture 16
1
Callable Bond
Issuer can redeem bond (pay back face value
& stop coupons) at anyone of a range of predetermined dates
Choice of redemption date