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One must use i := i/12 since compounding is done monthly rather than yearly. Therefore one uses i := 0.065/12 and then you get P = 174,032 which is the correct answer. 2 In another solution, the answer is based on replication approach. Here, we provide some other approaches for the valuation of the LIBOR rate, \begin{align} L(T_{i-1}; T_{i-1}, T_i) = \frac{1}{\Delta T_i}\left(\frac{1}{P(T_{i-1}, T_i)}-1\right), \end{align} set aT_{i-1}$and paid at$T_i$, where$\Delta T_i =T_i-T_{i-1}$. Let$E$be the expectation ... 1 Edit for Gordon. First, fix point in time$T_0,...,T_n$whereas$T_1,...,T_n$are the coupon dates and$T_0$is interpreted as the emission date of the bond. At time$T_i$,$i = 1,...,n$the owner of the bond receives$c_i$.At time$T_n$the owner receives the face value K.We now go on to compute the price of this bond, and it is obvious that the coupon bond ... 4 Feynman–Kac Theorem: Assume that$Fis a solution to the boundary value problem \begin{align} &F_t+\mu(t,x)F_x+\frac{1}{2}\sigma^2(t,x)F_{xx}-rF=0\\ &F(T,x)=\Phi(x), \end{align} Assume furthermore that the processe^{-r_s}\sigma(s,X_s)F_s$is in$\mathcal L^2where \begin{align} dX_s=\mu(s,x)ds+\sigma(s,x)dW_s, \end{align} thenF$has the ... 0 You can calculate Future Value with Matlab as follow FutureVal = fvdisc(Settle, Maturity, Price, Discount, Basis) Settle: Settlement date. Maturity: Exercise date. Price: present value of the security. Discount: Bank discount rate of the security. Basis: Day-count basis of the instrument(actual/360) For example, Settle = '03/15/2015'; Maturity = ... 1 The time$0$forward rate from tme$n-1$to time$n$is $$1 + i_0(n-1, n) = \dfrac{(1 + s_0(n))^n}{(1+s_0(n-1))^{n-1}}$$ where$s_0(n)$is the$n$-year spot rate and$i_0(n-1, n)$is the time$0$forward rate from time$n-1$to time$n\$. The term structure of interest rates must be increasing to avoid arbitrage opportunities. ...