Calculate the equivalent simple discount rate p.a Answer d = 10.327082%

Login

+2 votes

The answer is fairly simple and requires only a little thought.

We present value cashflows with the discount rate and can present value the same cashflows with the simple interest rate based on the assumption of no arbitrage. Here are the equations below:

$$20m = Price(1+ 0.106*91/365) $$

$$Price = 19.485...m$$ Remember not to round but store values instead.

Lastly, by the no arbitrage assumption:

$$20m(1-d*91/365) = 19.485..m$$

$$d=0.103270821$$

- All categories
- BUS 1003H - Introduction to Financial Risk (52)
- BUS 2016H - Financial Mathematics (55)
- BUS 3018F - Models (74)
- BUS 3024S - Contingencies (61)
- BUS 4028F - Financial Economics (39)
- BUS 4027W - Actuarial Risk Management (55)
- BUS 4029H - Research Project (5)
- Mphil (1)
- Calculus and Pure Mathematics (4)
- Statistics (16)

...