Financial Math Answers

found two call options A and B, both options sell in the market for $4, for an underlying stock which currently sells at $15. Both options mature in one year, and the risk free rate is 6% and a variance of 4%. Upon maturity, you can exercise option A for $10, and option B for $20.

Which option you choose to buy? Explain your answer.

An investment of Ksh1,000,000 in an account accumulated to Ksh 2,500,000 after 5 years.

(i) State the accumulation factor A(0,5) . (2 marks)

(ii) (a) Find the simple annual interest rate which would give the accumulation

factor in part (i). (3 marks)

(b) Find the annual compound interest rate which would give the

accumulation factor in part (i). (3 marks)

An investment of Ksh1,000,000 in an account accumulated to Ksh 2,500,000 after 5 years.

(i) State the accumulation factor A(0,5) . (2 marks)

(ii) (a) Find the simple annual interest rate which would give the accumulation

factor in part (i). (3 marks)

(b) Find the annual compound interest rate which would give the

accumulation factor in part (i). (3 marks)

A man borrow Tk.60,000 from another man at the rate of 6 percent compound interest on condition that

he will repay the money in 8 equal installments. What will be the size of the installment?

Suppose you have savings in the bank that you want to invest in stocks and bonds instead of setting up in a new business.

Write one to two paragraphs discussing what method you can use to make the investment and explain the reasons for your decision.

1. James invested 150,000.00 at 2.5% interest compounded semi-annually. Find the maturity value if he invests for (a) 4years? (b) 8years? (c) How much is the additional interest earned due to the longer time?

manufacturer of microcomputer produces three different models. The following table summarizes wholesale process, material cost per unit and labor cost per unit. Annual fixed costs are $ 25 million.

Microcomputer

Model 1

Model 2

Model 3

Wholesale price per unit

$500

$1,000

$1,500

Material cost per unit

$175

$400

$750

Labor cost per unit

$100

$150

$225

Determine a joint total revenue function for sale of the three different microcomputer models?

Determine an annual total cost function for manufacturing the three models.

Determine the profit function for sales of the three models.

A manufacturer of microcomputer produces three different models. The following table summarizes wholesale process, material cost per unit and labor cost per unit. Annual fixed costs are $ 25 million.

three models.

What is an annual profit if the firm sells 20,000, 40,000 and 10,000 units, respectively of the three models?

If P20,000 will accumulate to P45,758.55 in 4 years, what is the interest rate compounded semi-annually?