Question 1: Computer applications for financial modelling

An investor has opened a saving account with a deposit of $ 15,000 at the beginning of year. He intends to make nine similar deposits at the beginning of each year. If the saving account pays 8% interest, Use Excel to compute the accumulated amount at the end of ten years?

Solve this problem two ways:

i) Take each amount and compute its future value in year 10 and then sum. (8 Marks) ii) Use the FV function (2 Marks)

Question 2: Statistics and Mathematics as a foundation of financial modeling

Below is a list of the Nairobi Securities Exchanges daily volumes for two weeks of trading, in millions of shares.

669 754 752 771 835 659 755 742 671 845

Using Excel Functions and Data analysis, find

i. The mean, Mode and Median for the values (6 Marks

ii. The variance and standard deviation for these values (4 Marks)

Question 3: Simple regression Model

1. The following table shows sample data for the number of motor registration and the number of tyres sold in a certain territory for the same period.

Year Motor No. of Tyres Sold

Registration

1 600 1250

2 630 1100

3 720 1300

4 750 1350

5 800 1500

6 830 1650

Using Excel, carry out the following analysis:

i) Compute the correlation coefficient between motor registration and sale of motor tyres.

Interpret your results (3 Marks)

ii) Obtain a scatter diagram of motor registration and sale of motor tyres. (2 Marks)

iii) Fit a regression equation of the form =0 +1 to this data. Interpret your results in the context of the problem. (4 Marks)

iv) Predict the number of tyres sold when there are 950 motors registered. (1 Marks)