Financial Markets and Institutions Mathematical Problems - 1100 Words

Financial Markets and Institutions: Mathematical Problems (Coursework Sample) Content: Students NameProfessors NameCourse DateFinancial Markets and InstitutionsQuestion OneQuantity demanded = Quantity supplied301.5i = 2i -2 32 = 3.5ii = 9.14% Quantity = 301.5(9.14) = 16.29401.5i = 2i2 42 = 3.5ii = 12% Quantity = 401.5(12) = 22There is an increase in quantity demanded. An increase in expected profits may cause a rise in demand since higher future profits may lead to more current investment by individuals and firms. Hence, the demand for loanable funds will increase. Also, if the expected future disposable income is expected to increase, then individuals will demand more loanable funds. 201.5i = 2i - 2 22 = 3.5ii = 6.29% Quantity = 201.5(6.29) = 10.58There is a decrease in quantity demanded. A decrease in expected profits may cause the decrease in demand since lower future profits may lead to less or no investment by individuals and firms. Hence, the demand for loanable funds will decrease. Also, if the expected future disposable income is expe cted to decrease, then individuals will demand less loanable funds. 2i = 31.5i3.5i = 3i = 0.86%Quantity = 2(0.86) = 1.72In this case, the low interest rate makes saving less attractive to households, hence leading to a decrease in the quantity supplied of loanable funds. Question Two1 + 1R2 = [(1 + 1R1) (1 + E(2R1) + L2)]1/21.16 = [(1.12) (1 + 0.12 + L2)]1/2(1.16)2 = [(1.12) (1 + 0.12 + L2)] QUOTE

 = 1 + 0.12 + L2 QUOTE

1.12 = L2L2 = 8.14%Question ThreeAmortization formula:A = P  QUOTE

In this case, r=0.06 n=30 P=$300,000 = 300,000 QUOTE

 = $21,518.99 per year = $1793.25 per monthQuestion Four  EMBED Equation.DSMT4 
1R1 = 5%1R2 = [(1 + 0.05)(1 + 0.08)]1/21 = 6.49%1R3 = [(1 + 0.05)(1 + 0.08)(1 + 0.095)]1/31 = 7.48%1R4 = [(1 + 0.05)(1 + 0.08)(1 + 0.095)(1 + 0.11)]1/41 = 8.35%1R5 = [(1 + 0.05)(1 + 0.08)(1 + 0.095)(1 + 0.11)(1 + 0.09)]1/51 = 8.48% Yield curve:
Question FiveFormula: 1 + E(ir1) = (1 + 1Ri)i(1 + 1Ri-1)i-1 and E(ir1) = 1 - (1 + 1Ri)i(1 + 1Ri-1)i-14f1 = (1.0735)4(1.06)31 = 11.5%5f1 = (1.0765)5(1.0735)41 = 8.86%6f1 = (1.08)6(1.0765)51 = 9.8%Question SixFuture Value (FV) = $3,000 Present Value (PV) = $1,500 rate per period (r) = 8.5%FV = PV (1 + r)n3,000 = 1,500 (1 + 0.085)n2 = (1 + 0.085)nNumber of periods (n) =...