% Script: Exercise2_5.m
% description: this file calculates some of the
% the numbers required by Exercise 2.5.

disp(' The prevailing interest rate at start of investment:')
r = 0.06
disp(' Our investment goal:')
goal = 100000
disp(' The amount we have to invest at the current rate to meet our goal:')
invest = goal/(1+r)^3
disp(' The available instruments and their prices:')
bondA = [0 8 8 8 8 108]
priceA = pvvar(bondA,r)
couponA = bondA(2)
bondB = [0 106]
priceB = pvvar(bondB,r)
couponB = 6
bondC = [0 7.5 7.5 107]
priceC = pvvar(bondC,r)
couponC = bondC(2)
deltar = 0.03;
disp(' Go all bond A:')
pause
finalcashA = zeros(2,1);
numbondA = invest/pvvar(bondA,r)
disp(' Suppose after one year the rate jumps 3%:')
newr = r + deltar
disp(' At end of 3 years the money weve made so far:')
moneysofar = numbondA*couponA*((1+newr)*(1+newr) +(1+newr) + 1)
disp(' Now sell the bonds at their market price')
bondsaleprice = pvvar([0,bondA(5:6)],newr)
finalcashA(1) = moneysofar + numbondA*bondsaleprice;
disp(' Suppose after one year the rate drops 3%:')
newr = r - deltar
disp(' At end of 3 years we have:')
moneysofar = numbondA*couponA*((1+newr)*(1+newr) +(1+newr) + 1)
disp(' Now sell the bonds at their market price')
bondsaleprice = pvvar([0,bondA(5:6)],newr)
disp(' Here are the totals under either scenario: ')
finalcashA(2) = moneysofar + numbondA*bondsaleprice
disp(' Displacement from our goal of $100,000:')
deltagoal = finalcashA - [100000;100000]
disp(' Next, go all bond B:')
pause
finalcashB = zeros(2,1)
disp(' Suppose after one year the rate jumps 3%:')
newr = r + deltar
disp(' At end of three years we have:')
moneysofar=invest*(1+r)*(1+newr)^2
finalcashB(1)=moneysofar;
disp(' Suppose after one year the rate drops 3%:')
newr = r - deltar
disp(' At end of 3 years we have:')
moneysofar=invest*(1+r)*(1+newr)^2
finalcashB(2)=moneysofar;
disp(' Displacement from our goal of $100,000:')
deltagoal = finalcashB - [100000;100000]
disp(' Go all bond C:')
pause
finalcashC = zeros(2,1);
numbondC = invest/pvvar(bondC,r)
disp(' Suppose after one year the rate jumps 3%:')
newr = r + deltar
disp(' At end of 3 years the money weve made so far:')
moneysofar = numbondC*couponC*((1+newr)*(1+newr) +(1+newr) + 1)
disp(' Now collect the face value and add it in:')
finalcashC(1) = moneysofar + numbondC*100;
disp(' Suppose after one year the rate drops 3%:')
newr = r - deltar
disp(' At end of 3 years we have:')
moneysofar = numbondC*couponC*((1+newr)*(1+newr) +(1+newr) + 1)
disp(' Here are the totals under either scenario: ')
finalcashC(2) = moneysofar + numbondC*100
disp(' Displacement from our goal of $100,000:')
deltagoal = finalcashC - [100000;100000]
pause
disp(' Given a weighting like the following example, we compute the resulting displacement from our goal as follows:')
wts = [1/3;1/3;1/3]
finalcash = [finalcashA,finalcashB,finalcashC]*wts
disp(' Displacement from our goal of $100,000:')
deltafinalcash = finalcash - [100000;100000]