3.12 Suppose the spot rates of interest for investment horizons of I to 5 years 4%, and for 6 to 10 years are 5%. (a) Compute the forward rates of interest if for t = 1,2, ... , 10. (b) Calculate the present value of an annuity-immediate of $100 ove years. (c) Compute the future value of the annuity-immediate at the end of 10, assuming future payments earn the forward rates of interest, u equation (3.18). (d) Repeat part (c) using equation (3.14). You should get the same answer as in part (c). (e) Show that the future value of the annuity-immediate at the end of year 10, assuming future payments earn the spot rates of interest as at time 0, is 100 x (STUJ0.05 - $E10.05) + 100 x s0.04
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
3.12 Suppose the spot rates of interest for investment horizons of 1 to 5 years are 4%, and for 6 to 10 years are 5%.
(a) Compute the forward rates of interest iFt for t = 1, 2, 3, .., 10 years.
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