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Determine the future value of a $5,000 compound-interest Canada Savings Bond at 8.5%/a, compounded annually after each amount of time.
4 years
factors are given as
u = e^(σ sqrt(h))
, d = e^(−σ sqrt(h))
,
where σ denotes the volatility parameter and h stands for the length of a single period
in a tree.
3.1.1 What is the ratio Su/Sd? [2]
3.1.2 What is the (as simplified as possible) expression for the risk-neutral probability
of the stock price going up in a single step? [2]
3.2 Find the current price of a one-year, R110-strike American put option on a non-
dividend-paying stock whose current price is S(0) = 100. Assume that the continuously compounded interest rate equals r = 0.06. Use a two-period Binomial tree with
u = 1.23, and d = 0.86 to calculate the price VP(0) of the put option.
𝛿(𝑡) = {
0.01 + 0.01𝑡 0 ≤ 𝑡 < 4
0.15 − 0.003𝑡2 4 ≤ 𝑡 < 6
0.06 𝑡 ≥ 6
(i) Find the expression for the value at time 𝑡 = 0 of a payment of $100 at time �
price of this stock is quoted at R85. Construct an arbitrage strategy given this scenario
dividend-paying stock whose current price is S(0) = 100. Assume that the continuously icompounded interest rate equals r = 0.06. Use a two-period Binomial tree with
u = 1.23, and d = 0.86 to calculate the price VP(0) of the put option.
An investment with an initial outlay of R500 000 generates five successive annual cash inflows of R75 000, R190 000, R40 000, R150 000 and R180 000 respectively. The internal rate of return (IRR) is [1] 7,78%. [2] 27,0%. [3] 9,48%. [4] 21,3%. [5] none of the above. Question 2 You must choose between two investments, X and Y . The profitability index (PI), net present value (NPV) and internal rate of return (IRR) of the two investments are as follows: Criteria Investment X Investment Y NPV R44 000 −R22 000 PI 1,945 0,071 IRR 16,00% 8,04% Which investment(s) should you choose, taking all the above criteria into consideration, if the cost of capital is equal to 12% per year? [1] X [2] Y [3] Both X and Y [4] Neither X nor Y [5] Too little information to make a decision 17 DSC1630
5. A proforma cost sheet of a company provides the following particulars
Elements of cost
Material - 40%
Direct labour - 20%
Overheads - 20%
The following further particulars are available
a) It is proposed to maintain a level of activity of 2, 00,000 units
b) Selling price is Rs 12 per unit
c) Raw materials are expected to remain in stores for an average period of
one month
d) Material will be in process, on average half a months and is assumed to
be consisting of 100% raw material, wages and overheads
e) Finished goods are required to be in stock for an average period of one
month
f) Credit allowed to debtors is two months
g) Credit allowed by suppliers is one month
You may follow that sales and production follow a consistent pattern,
You are required to prepare a statement of working capital requirements a
forecast profit and loss account and balance sheet of company assuming that
Share capital -Rs 15, 00,000
8% debentures -Rs 2, 00,000
Fixed Assets -Rs 13, 00, 000
