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Given the (yearly) spot rate curve s = (4.8, 5.1, 5.4, 5.6, 5.8, 5.9), find the spot rate curve for next yea
Year (i)
Spot rate (S)
Spot rate (f 1, i)
1
4.80%
5.10%
5.401%
5.40%
5.701%
Q-2:
Consider two 6-year bonds: one has a 10% coupon and sells for 108.00; the other has a 5% coupon and sells for 85.06. Find th
10 x + 5 y = 0
x+y =1
10 x + 10 y = 10
5 y =10
y=2
x= -1
-108 + 2*(85.06) = P
P=
Q-3:
62.12
Year
Cash Flow
1
2
3
4
5
6
7
Q-4:
Spot Rate
-40
10
10
10
10
10
10
Problem 4.13
Stream Immunization
5
5.3
5.6
5.8
6
6.1
Discount rate
d0,k
0.9523809524
0.9018685815
0.8491965975
0.7981000338
0.7472581729
0.7009833403
Discount rate
d k, k+1
0.9523809524
0.9469620106
0.9415968301
0.9398295237
0.9362963804
0.9380738355
Year
1
2
3
4
5
6
7
8
9
10
11
12
Total:
Duration:
Spot
7.67%
8.27%
8.81%
9.31%
9.75%
10.16%
10.52%
10.85%
11.15%
11.42%
11.67%
11.89%
P1:
P2:
Obligation:
Year
Cash Flow
1
500
2
900
3
600
4
500
5
100
6
100
7
100
8
50
d
0.93
0.85
0.78
0.70
0.63
0.56
0.50
0.44
0.39
0.34
0.30
0.26
B1
6
6
6
6
6
6
6
6
6
6
6
106
PV1
5.573
5.118
4.657
4.203
3.768
3.357
2.979
2.632
2.317
2.035
1.782
27.530
65.951
65.95
101.66
12 Year 6% bond.
5 Year 10% bond.
Spot Rate
PV
7.67%
464.381907681
8.27%
767.761333098
8.81%
465.74137337
9.31%
350.211519423
9.75%
62.8025612044
10.16%
55.9572594595
10.52%
49.6493841962
10.85%
21.9323124738
Sum
2238.43765091
Quasi modified duration of obligation
-PV1'
431.301
1418.235
1284.095
1281.535
286.116
304.778
314.464
158.285
5478.809
2.4476042424
Immunization Result
0%
1%
Bond1
Shares
Price
Value
-14.03
65.95
-925.10
-14.03
61.51
-862.87
Bond2
Share
Price
Value
31.12
101.66
3163.32
31.12
97.90
3046.42
Obligation Value
2238.44
2184.70
Bonds - Obligation
-0.22
-1.16
5.60%
5.868%
5.80%
6.051%
5.90%
6.121%
a 5% coupon and sells for 85.06. Find the price of a 6 year zero-coupon bond
eq 1
eq 2
PVk
9.4978767842 Running PVk = 9.497
51.972770623
44.323605545
36.452550017
28.146115172
19.380738355
10
Answer
-PV1'
5.176
9.455
12.841
15.378
17.167
18.287
18.868
18.994
18.763
18.262
17.551
295.257
465.999
7.066
B2
10
10
10
10
110
PV2
9.287638
8.530681
7.762356
7.00423
69.08282
0
0
0
-PV2'
8.626022
15.75816
21.40159
25.6307
314.7281
0
0
0
101.668 386.145
3.7981
6% bond.
10% bond.
P1*X1+ P2*X2 = PV
P1*D1*X1+ P2*D2*X2 = PV*D
65.951
466.0
x1=
x2=
* X1
*X1
+
+
101.668 *X2
386.1446 *X2
-14.02731
31.11665
Year
-1%
-14.03
70.84
-993.69
31.12
105.62
3286.54
2294.30
= 2238.438
= 5478.809
1
2
3
4
Spot
8.67%
9.27%
9.81%
10.31%
B1
6
6
6
6
-1.45
5
6
7
8
9
10
11
12
10.75%
11.16%
11.52%
11.85%
12.15%
12.42%
12.67%
12.89%
1
2
3
4
5
6
7
8
9
10
11
12
Spot
6.67%
7.27%
7.81%
8.31%
8.75%
9.16%
9.52%
9.85%
10.15%
10.42%
10.67%
10.89%
0.60
0.53
0.47
0.41
0.36
0.31
0.27
0.23
6
6
6
6
6
6
6
106
0.94
0.87
0.80
0.73
0.66
0.59
0.53
0.47
0.42
0.37
0.33
0.29
B1
6
6
6
6
6
6
6
6
6
6
6
106
eq1
eq2
PV
460.109
753.773
453.133
337.684
60.018
53.004
46.6155
20.4118
2184.75
PV1
5.521
5.025
4.531
4.052
Year
B2
10
10
10
10
65.951
466.0
101.668 2238.438
386.1446 5478.809
PV
468.735
782.143
478.822
363.325
65.7436
59.1043
52.911
23.5814
2294.37
3.601
3.180
2.797
2.449
2.138
1.861
1.615
24.742
61.514
110
PV1
5.625
5.214
4.788
4.360
3.945
3.546
3.175
2.830
2.514
2.227
1.967
30.662
70.852
B2
10
10
10
10
110
66.01977
0
0
0
97.903
PV2
9.374707
8.690473
7.980367
7.266508
72.31799
0
0
0
105.630
5.2
2 Independent goals and 10 Projects
Total Annual Budget
$5,000,000
Table 5.2
Description
Cost ($1000000)
1- Concrete, 2 lanes
2
Road
2- Concrete, 4 lanes
3
between
1.5
Augen and 3- Asphalt, 2 lanes
Burger
4- Asphalt, 4 lanes
2.2
5- Repair existing
0.5
1.5
Bridge at cay 6- Add Lane
road
7- New Structure
2.5
8- Traffic lights
0.1
0.6
Traffic Control 9- Turn Lanes
in Downsberg 10- Underpass
1
Atmost one project can be selected for each major objectives.
The Bridge at Cay road is actually part of the road between Augen and Burger. Therefor
reasonable for the bridge to have fewer lanes than the road itself.
MAXIMIZE
( Binary)
Answer:
Q. 5.7
Fishing Problem
10*2
10*4
10*8
Node vales: Tonnage of fish
Branch Values: Cash Flows
Interest rate:
33%
Discount factor:
0.75188
Highest cash flow generating path from ends
( 28, 0, 0) & ( 14, 14, 0)
Value (V) = MAXIMUM ( 0+ 0.75188*28 , 14 + 0.75188*14)
MAX
21.05263 24.52631579 )
Interest rate:
25%
Discount factor:
0.8
Highest cash flow generating path from ends
( 28, 0, 0) & ( 14, 14, 0)
Value (V) = MAXIMUM ( 0 + 0.8*28 , 14 + 0.8*14)
MAX
22.4
25.2 )
Answer
+.6X9+ X10<=5
NPV
0
0
0
4300
0
1500
0
0
0
2000
7800
Goals
28
28
14
14
7
7
1
4
0
0
7
0