Question 5 [14 marks]. Suppose that in the fixed interest rate model the interest rate compounded...

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Question 5 [14 marks]. Suppose that in the fixed interest rate model the interest rate compounded yearly has the continuous distribution R~ Uniform (1.3%, 2.7%). (a) Determine the probability that £200 accumulates to less than £210 after three years? State your answer as a decimal to three significant figures. (b) Find the expected present value of a payment of £10,000 received five years from now. State your answer to the nearest pound. (c) Find the present value of a payment of £10,000 received five years from now if interest is not random any more, but is compounded yearly at rate E (R), where E denotes expected value. State your answer to the nearest pound. Question 5 [14 marks]. Suppose that in the fixed interest rate model the interest rate compounded yearly has the continuous distribution R~ Uniform (1.3%, 2.7%). (a) Determine the probability that £200 accumulates to less than £210 after three years? State your answer as a decimal to three significant figures. (b) Find the expected present value of a payment of £10,000 received five years from now. State your answer to the nearest pound. (c) Find the present value of a payment of £10,000 received five years from now if interest is not random any more, but is compounded yearly at rate E (R), where E denotes expected value. State your answer to the nearest pound.

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a To determine the probability that 200 accumulates to less than 210 after three years we need to find the probability that the interest rate is less ... View the full answer