In Question 2, why did we calculate the present value of the security to time 0 not 8/12 months if the contract is negotiated at time 8/12?

Login

0 votes

The memo solution is in fact incorrect.

The correct solution is as follows:

$$P = v^{\frac{2}{3}}(5\ddot{a}_{\overline{19}|}+120v^{18}) = 142.26$$

$$I = v^{\frac{2}{3}}(5+5v+5v^2) = 14.29$$

$$K=(P-I)e^{0.05\text{x}1.5} = 137.93$$

where the basic time unit is 6 months.

Hence the forward price per R90 000 nominal is R124 140.

- 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 (54)
- BUS 4029H - Research Project (5)
- Mphil (1)
- Calculus and Pure Mathematics (4)
- Statistics (16)

...