Financial Math - For people who with Financial math related problems.

[the_force]

This is a spawn from the suggestion forum where I suggested we start a Financial Math/engineering sub-forum in the math section. I am just testing the waters to see if there is enough interest in financial related math/engineering.

I am able to answer any qustions regarding Financial Math/Engineering you may have.

Most common are the basics:

Bond calculations
Present Value
Future Value
YTM
Financial Ratio's - Ex- Acid test ratio
Derivative related (strike/intrinsic)
Margin calculations
Option and future related
Duration

Plus the more advanced concepts.

So, let's see what happens. If you have any Finance classes and need help, or whatever, just Post them.

Take care.

 

[AsianSensationK]

Oooo...I love this stuff. Especially the concept of arbitrage.

Too bad. I'm just an undergrad slowly working my way to the more advanced stuff.

 

[ajaffary]

the timing on this (and your initial) post is uncanny.

i just began a computational finance class. i was googled "financial math forum", and this popped up. thank you. I'm interested in discussing elementary financial mathematics, as no one else i know personally is really into this. I'm new this area but am keeping up well.

at the moment I'm working on a problem developing a pricing equation for a coupon bond with variable interest rate. the professor suggested laplace transform to solve in the case where interest rate r is fixed. i did that, and I'm guessing in the case where r is variable, it's necessary to use convolution to solve this equation:

dP/dt - r(t)P(t) = c[d(t-t_0)]

where:
P(t) = price at t
r(t) = rate of interest
c = coupon amount

In the class we're assuming compound interest, so in order to allow for discrete coupon payments, we use the dirac delta.

 

[Andersxman]

Newbee in Financial Math - CDs - calculation of price

Pricing a CD
Assume that a bank wanted to issue a CD with a total face amount of USD 3,000,000 for 6 months (181 days). The coupon rate that the bank wanted to pay was 3.50% p.a.

Currently the market is only demanding a 3.25% p.a. yield on a money market basis for 6-month CDs issued by comparable (credit rating and name recognition) banks. What is the price of the CD that the bank can issue? Input your answer correct to two decimal places.

Anyone able to help me with a method for calculating this?

Apparantly, the "formula" is something like this:

Y = (R/I -1) * 360/d

Y = annualized yield of the investment on a money market basis
R = Proceeds from the investment
I = initial investment amount (But this is what I don't get - in my material it is stated that the I is "initial investment amount * P", and P is the price.. Also, P is the solution to the question..

So my confusion has everything to do with "P" - I am trying to find out what P is, and I need P to do that(?)

Anyone?

 

[jhayes]

need help with expected return problem

I have searched the net for an online calculator to figure out this problem. Your expertise would help!

An investment of 3 million dollars is expected to become 6 million dollars in ten years. What is the expected rate of return?

Thanks. -John

 

[NicholasMM]

Hi gang, I need help with a formula if somebody with an enormous brain has some spare time.

I need to work out what 9% of $60,000 ($5400) invested annual at 7% (net of fees and taxes) would grow to in 30 years, with the $60,000 increasing by 3% inflation each year (so the figure that 9% amounts to grows each year).

There is also a starting balance of $100,000.

I then need to be able to alter that 9% and make it 12% to see what the difference would be in the result.

If anybody can help a maths knucklehead such as myself that would be wonderful.

Thanks ... Nick.

 

[cherrygal]

Hi Sorry can anyone help me with this question, I did a few parts of this question but the remaining I am having problem =(

In an economy, there are many identically distributed and independent projects, that is, each project requires $10m of investment and pays back in a year of either $11m with probability 95% or $0m (fails) with probability 5%, while the payout of each project does not depend on the payout of other projects.

a) What is the mean and standard deviation of the rate of return if a bank is to investment in N projects? What happens if N goes to infinity (N→∞)?

b) Suppose the asset of a bank is many such projects (N→∞), and the secondary security this bank offers to its customers is a one‐year CD with fixed return 1 + r, what is the maximum rate of return r a competitive bank can offer? Ignore the operational cost and other costs.

f) If an investor has $10m and he can either invest in one project or buy the one‐year CD with the maximum rate of return offered by the bank. He is risk averse, with expected utility function as Eu(c) (10c - 0.5c^2 ), where c is his consumption at the end of year 1, uncertain at the beginning of the year. Suppose he will only consume at the end of year one and will consume whatever he has at that time. At the beginning of the year, will he invest in CD or the project to maximize his expected utility?

 

[beckman55]

Currently I'm renting my home out and was wondering how I should invest my money. Here are the facts:

Mortgage $811.67
Taxes $189.34
Assoc $167
Total - Assoc $1,001.01
Total $1,168.01

Mortgage Left $147,881.30 28 years 8 mo 5% interest

Rent + $950 /month

What is my best option:

1) Continue to pay my mortgage at $1,001.01 along with paying the $950 towards the principal each month or

2) Invest the $950/mo into a CD, bond, etc at a certain percentage?

If option #1 what is my gain each year?
If option #2 what is the minimum % interest I would need for it to make sense

Thanks in advance