P

The following H-YEHI' spot rates apply at time: = . 1 year spot rate of interest: dlv'i'lvt per annum effective 2 year spot rate of interest: 5% per annum effective 3 year spot rate of interest: 'zt per annum effective Calculate the two year forward rate of interest from time t = 1 expressed as an annual effective rate of interest. [2] Describe what is meant b_v a \"currency swap\". [2] For a rate of interest of T% per annuin+ convertible monthly, calculate: {i} the equivalent rate of interest per annum convertible halfvesrlv, and [2] {ii} the equivalent rate of discount per annum convertible monthly [2] [Total 4] A certain company issues both debenture stocks and unsecured loan stocks. Describe the differences between these two types of asset. [4] 5 You are given the following information in respect of a pension fund: Calendar Value of fund at Value of fund at Net cash flow received on Year 1 January 30 June 1 July 1997 $180,000 $212,000 $25,000 1998 $261,000 $230,000 $18,000 1999 $273,000 $295,000 $16,000 2000 $309,000 Calculate the annual effective time weighted rate of return earned on the fund over the period from 1 January 1997 to 1 January 2000. [4] 6 (i) Calculate S: at an effective rate of interest of 13% per annum. [3] (ii) Explain what your answer to (i) represents. (2]7 An investor is considering the purchase of 100 ordinary shares in a company. Dividends from the share will be paid annually. The next dividend is due in one year and is expected to be 8p per share. The second dividend is expected to be 8% greater than the first dividend and the third dividend is expected to be 7% greater than the second dividend. Thereafter, dividends are expected to grow at 5% per annum compound in perpetuity. Calculate the present value of this dividend stream at a rate of interest of 7% per annum effective. [5] 8 The force of interest 8() at time t is given by 6(1) = 0.06 0