EC7103 – C++ Programming for Finance – Coursework 2

Consider an investment project with an initial investment of X pounds and fixed (positive) cash flow of C pounds every year for the next n years. The internal rate of return (IRR) is the value of r that makes the net present value of the investment equal zero, satisfying the following relationship:

In this coursework you will have to write a programme to calculate the IRR using three different algorithms covered in the module. Your programme must have the following components:

1. You must ask the user to provide all the information required for the programme to work.
2. You must use calculate the IRR using the secant method, the bisection method, and Newton-Raphson method.
3. The objective function of these algorithms must be programmed as a separate function.
4. Once finished, you must show the user the value of the IRR calculated using each of the algorithms, and at least the number of iterations of each algorithm until convergence. You can show the user other information that you find relevant.
5. Based on your results, comment which algorithm you would prefer, and provide a reason for your choice. Write this directly as comments on your cpp file.

You must upload your source file (file with extension .cpp) to Turnitin by the day and time indicated in the coversheet. This the second of the three pieces of coursework that you should submit during the semester. This coursework is worth 25% of your total mark to the module.

Getting Started!

You can use the examples in the lectures and seminars as starting point and reference to understand the use of the tools needed to solve this coursework. You can explore the methods a little further in the following textbooks:

• Hull, J., 2012, Options, futures and other derivatives, eighth edition, Pearson.
• Hull, J., 2015, Risk management and financial institutions, fourth edition, Wiley
• M.J. Capinski and T. Zastawniak (2012), Numerical Methods in Finance with C++. Cambridge University Press.
• J. Duffy (2004), Financial Instrument Pricing Using C++. Wiley Finance.

 45-49% Minimum requirements have not been met. Scholarship: Inadequate understanding of key issues and concepts; some material may be used inappropriately; uninspired and unoriginal; relies on limited knowledge; analysis poor or obscure, superficial or inconsistent in places; arguments incomplete, partly irrelevant or naive. Independent learning: Restricted to a basic awareness of course material and textbooks; meagre use of material to support assertions. Writing skills: Poor use of English exhibiting errors. Answer may be poorly focussed on the question, lack rigour and/or consist of a series of repetitive, poorly organised points or unsubstantiated assertions that do not relate well to one another or to the question, although some structure discernible. Analysis: Inadequate knowledge of the analysis to be followed, with frequent errors. Some attention paid to underlying principles, but lacking in understanding and frequently irrelevant. Some interpretation is given, but it does not place the analysis in any real context 40-44% Scholarship: Poor knowledge of relevant material; omission of key ideas/material; significant parts may be irrelevant, superficial or factually incorrect; inappropriate use of some material; mere paraphrasing of course texts or lecture notes; key points barely mentioned; very weak grasp or complete misunderstanding of the issues; inclusion of irrelevant material; does not address the topic or question. Independent learning: Restricted to a basic awareness or no awareness of course material and textbooks; very meagre use of supporting material or unsupported assertions; use of irrelevant or unconvincing material. Writing skills: Unacceptable use of English (i.e. comprehension obscured by significant and intrusive errors of spelling, punctuation and grammar); poor and unclear, or totally incoherent, structure. Answers that ‘run out of time’ or miss the point of the question may fall into this (or a lower) class. Analysis: Erroneous analysis with mistakes. Very little attention paid to the underlying principles of the analysis. Far from complete with little relevance to the problem. Limited interpretation that reveals little, if anything, about the meaning 20-39% Scholarship: Displays a superficial appreciation of the demands and broad context of the question but is largely irrelevant, fundamentally flawed, or factually incorrect; inappropriate use of material; mere paraphrasing of course texts or lecture notes; key points barely mentioned; complete misunderstanding of the issues; inclusion of irrelevant material. Independent learning: Restricted to a limited awareness of basic course material; unsupported assertions; use of irrelevant or unconvincing material. Writing skills: Minimal structure, though may only list key themes or ideas with limited comment or explanation. Analysis: Analysis has very significant omissions demonstrating little understanding of problem or underlying principles. Analysis may be ill suited to problem. Very little interpretation of meaning of the analysis. 0-19% Scholarship: No recognition of the demands or scope of the question and no serious attempt to answer it. Complete misunderstanding of the issues; inclusion of irrelevant material. May have simply failed to address the question/topic set. Independent learning: No evidence that the most basic course material has been understood; unsupported assertions; use of irrelevant or unconvincing material. Writing skills: Without structure; comprehension may be completely obscured by poor grammar, spelling, punctuation. Analysis: Virtually complete failure to carry out analysis. No evidence of understanding of underlying principles and bears no relevance to the problem. No attempt to interpret or explain the meaning of the analysis.

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