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Given information 1) Investment fund A:
𝛿𝐴 𝑡 = �
11000
𝑡 + 10 ; 0 ≤ 𝑡 ≤ 10
2𝑡
100 + 𝑡2; 10 < 𝑡 ≤ 20
2) Investment fund B: continuously compounded rate 𝑅𝑅
𝛿𝐵 𝑡 =𝑅
100
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
Given information 1) Investment fund A:
𝛿𝐴 𝑡 = �
11000
𝑡 + 10 ; 0 ≤ 𝑡 ≤ 10
2𝑡
100 + 𝑡2; 10 < 𝑡 ≤ 20
2) Investment fund B: continuously compounded rate 𝑅𝑅
𝛿𝐵 𝑡 =𝑅
100
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(i) If at 𝑡 = 20, the accumulated value of $1 invested in fund A equals 2.5 times the accumulated value of $1 invested in fund B.
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(i) If at 𝑡 = 20, the accumulated value of $1 invested in fund A equals 2.5 times the accumulated value of $1 invested in fund B.
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(i) If at 𝑡 = 20, the accumulated value of $1 invested in fund A equals 2.5 times the accumulated value of $1 invested in fund B.
$1 × 𝑎𝐴 20 = 2.5 × $1 × 𝑎𝐵 20
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
𝑎𝐴 20 = 𝑒𝑒𝑒 � 𝛿𝐴 𝑡20
0
𝑑𝑡
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
𝑎𝐴 20 = 𝑒𝑒𝑒 � 𝛿𝐴 𝑡20
0
𝑑𝑡
𝛿𝐴 𝑡 = �
11000
𝑡 + 10 ; 0 ≤ 𝑡 ≤ 10
2𝑡
100 + 𝑡2; 10 < 𝑡 ≤ 20
Recall
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
𝑎𝐴 20 = 𝑒𝑒𝑒 � 𝛿𝐴 𝑡20
0
𝑑𝑡
𝛿𝐴 𝑡 = �
11000
𝑡 + 10 ; 0 ≤ 𝑡 ≤ 10
2𝑡
100 + 𝑡2; 10 < 𝑡 ≤ 20
𝑎𝐴 20 = 𝑒𝑒𝑒 �1
1000𝑡 + 10
10
0
𝑑𝑡 + �2𝑡
100 + 𝑡2
20
10
𝑑𝑡
Recall
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
𝑎𝐴 20 = 𝑒𝑒𝑒 � 𝛿𝐴 𝑡20
0
𝑑𝑡
𝛿𝐴 𝑡 = �
11000
𝑡 + 10 ; 0 ≤ 𝑡 ≤ 10
2𝑡
100 + 𝑡2; 10 < 𝑡 ≤ 20
𝑎𝐴 20 = 𝑒𝑒𝑒 �1
1000𝑡 + 10
10
0
𝑑𝑡 + �2𝑡
100 + 𝑡2
20
10
𝑑𝑡
𝑎𝐴 20 = 𝑒𝑒𝑒1
1000𝑡2
2+ 10𝑡
0
10
+ ln 𝑡2 + 100 1020
Recall
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
𝑎𝐴 20 = 𝑒𝑒𝑒 � 𝛿𝐴 𝑡20
0
𝑑𝑡
𝛿𝐴 𝑡 = �
11000
𝑡 + 10 ; 0 ≤ 𝑡 ≤ 10
2𝑡
100 + 𝑡2; 10 < 𝑡 ≤ 20
𝑎𝐴 20 = 𝑒𝑒𝑒 �1
1000𝑡 + 10
10
0
𝑑𝑡 + �2𝑡
100 + 𝑡2
20
10
𝑑𝑡
𝑎𝐴 20 = 𝑒𝑒𝑒1
1000𝑡2
2+ 10𝑡
0
10
+ ln 𝑡2 + 100 1020
𝑎𝐴 20 =52𝑒3/20
Recall
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(i) If at 𝑡 = 20, the accumulated value of $1 invested in fund A equals 2.5 times the accumulated value of $1 invested in fund B.
$1 × 𝑎𝐴 20 = 2.5 × $1 × 𝑎𝐵 20
52𝑒3/20 = 2.5 × 𝑎𝐵 20
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
𝑎𝐵 20 = 𝑒𝑒𝑒 � 𝛿𝐵 𝑡20
0
𝑑𝑡
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
𝑎𝐵 20 = 𝑒𝑒𝑒 � 𝛿𝐵 𝑡20
0
𝑑𝑡
𝛿𝐵 𝑡 =𝑅
100 Recall
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
𝑎𝐵 20 = 𝑒𝑒𝑒 � 𝛿𝐵 𝑡20
0
𝑑𝑡
𝑎𝐵 20 = 𝑒𝑒𝑒 �𝑅
100
20
0
𝑑𝑡
𝛿𝐵 𝑡 =𝑅
100 Recall
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
𝑎𝐵 20 = 𝑒𝑒𝑒 � 𝛿𝐵 𝑡20
0
𝑑𝑡
𝑎𝐵 20 = 𝑒𝑒𝑒 �𝑅
100
20
0
𝑑𝑡
𝑎𝐵 20 = 𝑒𝑅/5
𝛿𝐵 𝑡 =𝑅
100 Recall
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(i) If at 𝑡 = 20, the accumulated value of $1 invested in fund A equals 2.5 times the accumulated value of $1 invested in fund B.
$1 × 𝑎𝐴 20 = 2.5 × $1 × 𝑎𝐵 20
52𝑒3/20 = 2.5 × 𝑒𝑅/5
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(i) If at 𝑡 = 20, the accumulated value of $1 invested in fund A equals 2.5 times the accumulated value of $1 invested in fund B.
$1 × 𝑎𝐴 20 = 2.5 × $1 × 𝑎𝐵 20
52𝑒3/20 = 2.5 × 𝑒𝑅/5
𝑅 =34
= 0.75
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(ii) If $1 invested in fund A at 𝑡 = 5 is worth $2 at 𝑡 = 𝑇, find the exact value of 𝑇, giving your answer in the form of 𝐴𝑒𝛼 + 𝐵 where 𝐴,𝐵𝜖𝜖 and 𝛼𝜖𝛼.
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(ii) If $1 invested in fund A at 𝑡 = 5 is worth $2 at 𝑡 = 𝑇, find the exact value of 𝑇, giving your answer in the form of 𝐴𝑒𝛼 + 𝐵 where 𝐴,𝐵𝜖𝜖 and 𝛼𝜖𝛼.
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(ii) If $1 invested in fund A at 𝑡 = 5 is worth $2 at 𝑡 = 𝑇, find the exact value of 𝑇, giving your answer in the form of 𝐴𝑒𝛼 + 𝐵 where 𝐴,𝐵𝜖𝜖 and 𝛼𝜖𝛼.
$1 × �𝛿𝐴 𝑡𝑇
5
𝑑𝑡 = $2
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(ii) If $1 invested in fund A at 𝑡 = 5 is worth $2 at 𝑡 = 𝑇, find the exact value of 𝑇, giving your answer in the form of 𝐴𝑒𝛼 + 𝐵 where 𝐴,𝐵𝜖𝜖 and 𝛼𝜖𝛼.
$1 × �𝛿𝐴 𝑡𝑇
5
𝑑𝑡 = $2
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(ii) If $1 invested in fund A at 𝑡 = 5 is worth $2 at 𝑡 = 𝑇, find the exact value of 𝑇, giving your answer in the form of 𝐴𝑒𝛼 + 𝐵 where 𝐴,𝐵𝜖𝜖 and 𝛼𝜖𝛼.
$1 × �𝛿𝐴 𝑡𝑇
5
𝑑𝑡 = $2
It’s obvious that 𝛿𝐴 𝑡 >0 .
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
(ii) If $1 invested in fund A at 𝑡 = 5 is worth $2 at 𝑡 = 𝑇, find the exact value of 𝑇, giving your answer in the form of 𝐴𝑒𝛼 + 𝐵 where 𝐴,𝐵𝜖𝜖 and 𝛼𝜖𝛼.
$1 × �𝛿𝐴 𝑡𝑇
5
𝑑𝑡 = $2
It’s obvious that 𝛿𝐴 𝑡 >0 . Observe that∫ 𝛿𝐴 𝑡10
5 𝑑𝑡 = 𝑒7/80 =< 2, therefore 𝑇 > 10.
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
Let 𝑇 > 10
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
Let 𝑇 > 10,
2 = 𝑒𝑒𝑒 �𝛿𝐴 𝑡𝑇
5
𝑑𝑡
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
Let 𝑇 > 10,
2 = 𝑒𝑒𝑒 �𝛿𝐴 𝑡𝑇
5
𝑑𝑡
2 = 𝑒𝑒𝑒 �1
1000𝑡 + 10
10
5
𝑑𝑡 + �2𝑡
100 + 𝑡2
𝑇
10
𝑑𝑡
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
Let 𝑇 > 10,
2 = 𝑒𝑒𝑒 �𝛿𝐴 𝑡𝑇
5
𝑑𝑡
2 = 𝑒𝑒𝑒 �1
1000𝑡 + 10
10
5
𝑑𝑡 + �2𝑡
100 + 𝑡2
𝑇
10
𝑑𝑡
2 = 𝑒7/80 𝑇2 + 100200
↔ 𝑇2 = 400𝑒−7/80 − 100
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E
Let 𝑇 > 10,
2 = 𝑒𝑒𝑒 �𝛿𝐴 𝑡𝑇
5
𝑑𝑡
2 = 𝑒𝑒𝑒 �1
1000𝑡 + 10
10
5
𝑑𝑡 + �2𝑡
100 + 𝑡2
𝑇
10
𝑑𝑡
2 = 𝑒7/80 𝑇2 + 100200
↔ 𝑇2 = 400𝑒−7/80 − 100
𝑇 = 400𝑒−7/80 − 100
MA3269: Mathematical Finance I Tutorial 2/Discussion Problem 4
Worapol Ratanapan A0074997E