An index linked note is an instrument that provides

Question

All variables and functions are to be typed (declared). Hint: option explicit. SIN and COS are the Excel functions and are for comparison.

1. A cosine can be approximated by the following infinite series:

cos??x=1- (x^2/2!)?+ (x^4/4!)- (x^6/6!)+ . . . Write a function that will calculate this for any x and y number of terms. If y > 85 or y is not a positive integer, return an error.

X	Y	Cos( x)	MyCosine (x,y)	Approximation error
0.31831	9
0.95493	9.5
1.27324	37
1.591549	65
2.228169	88

2. An index linked note is an instrument that provides investors fixed income-like principal protection together with equity market upside exposure.  It is structured by combining the economics of a long call option on equitywith a long discount bond position.The investment pays the greater of the par value, $1,000, or the price times the percentage increase in the S&P 500.

Write 2 functions (elnPayoff, elnReturn).  The first, elnPayoff, calculates the security payoff at maturity.  The second, elnReturn, calculates the annualized return assuming continuous compounding.  The function elnReturn should call the payoff function.

Price	Years	SP5000	SP5001	Payoff	Return
961	1	1783	1995
923	2	1298	1498
819	5	1288	1568
727	8	1335	1270

Answer 1

Consider the case situation illustrated in the assignment and on the basis of the information provide, solve and find out the result. Question: An index linked note is an instrument which gives investors fixed income-like principal protection altogether having equity market upside exposure. This is structured by combining the economics of a long call option on equity by means of a long discount bond position. The investment pays more of the par value, $1,000, or the price times the percentage rise in the S&P 500. Write down two functions (elnPayoff, elnReturn). The first, elnPayoff, computes the security payoff at maturity. The second, elnReturn, computes the annualized return supposing continuous compounding. The function elnReturn must call the payoff function.