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102QP_1101

102QP_1101

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ACTUARIAL SOCIETY OF INDIA
9, Jeevan Udyog, 278, Dr. D N Road, Fort, Mumbai \u2013 400 001
Examinations \u2013 November 2001
Subject 102 - Mathematics of Finance
Time allowed: 3 Hours
Maximum marks 100
Instruction to the Candidates

1. Write your Candidates number in the space provided.
2. Do not write your name anywhere in the answer sheets.
3. Mark allocations are shown in brackets.
4. Attempt all questions. Begin your answer to each question on a new page.
5. Actuarial Tables and graph paper will be available on request.

6.You may use simple electronic calculators, but not programmable ones or those
capable of storing prior data.
Q1.
Calculate
i)
(4)
15
a\ue000
&&;
ii)
(2)
10
Da\ue000.
Given the interest rate is 10% p.a. payable monthly
(6)
Q2.
Gopal has invested the following amounts in his bank account:
On 1st Jan 1999
Rs. 1000
On 1st July 2000
Rs. 2000
On 31st Oct. 2000
Rs. 1500
The bank has declared the following the compound interest rates for its
accounts:
1st Jan 99 to 31st Dec 99
6% p.a. payable half yearly
1st Jan 00 to 31st Dec 00
4% p.a. payable monthly
1st Jan 01 to till date
5% p.a.
102 \u2013 November 2001
Gopal wants to close his accounts as on 3oth Sept. 01. What money will
he get back?
(7)
Q3.
Prove by general reasoning:
n
n
s
n
Is
i
\ue000
\ue000
\u2212
=
&&
(5)
Q4.

Priya wants to purchase a 15 year bond which pays interest in arrears of 10% p.a. convertible half yearly. She will have an option to redeem the bond at par any time between the 10th year and the 15th year. Priya paid a price of Rs. 102 to purchase the bond, what would be the maximum effective yield that she can get out of this bond?

(6)
Q5.
Write short notes on
i)
Futures;
(3)
ii) Margins, in the context of derivatives;
(3)
iii) Swaps;
(3)
iv) Discrete time forward rates
(3)
[Total 12]
Q6.

A loan has an interest rate of 12% p.a. payable half yearly in arrears and will be redeemed at 120% in ten years time. An investor who is subject to income tax at 30% and capital gains tax at 40%, wants to purchase the loan. What price does he have to pay to get a net yield of atleast 10%?

(6)
Q7.

A fund has to make payments of Rs. 100,000 at the end of sixth year and Rs. 120,000 at the end of the ninth year. Show that, if interest rates are currently 9% at all durations, immunization to small changes in interest rates can be achieved by holding an appropriately chosen combination of a five year zero coupon bond and a twelve year zero coupon bond.

(8)
Q8.

A project has an initial outlay of Rs. 150,000, expenses of Rs. 20,000 at the end of 1st Year and Rs. 15,000 at the end of 2nd year. The income from the project are Rs. 20,000 at the end of each of the first 4 years and Rs. 200,000 at the end of the 5th year. Calculate the IRR (upto 1 decimal place) for this project?

(7)
Q9.

What is the accumulated value of a 5 year annuity of 1 per annum in arrears payable monthly increasing at 10% p.a. each year. The interest rate assumed is 8% p.a. convertible half yearly?

(6)
Q10.
The table below shows the progress of the investment portfolio of a
Pension Fund for the period 1 Jan 1998 to 31st Dec 2000.
Date
Fund Value
Cash flow
1 Jan 98
20,00,000
1 Jan 99
23,00,000

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