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Jan asks you for a loan. He wants $100 now and offers to pay you back $120 in 1 year. You can borrow and lend from the bank at an interest rate of 10% pa, given as an effective annual rate.

Ignore credit risk. Remember:

### V_0 = \frac{V_t}{(1+r_\text{eff})^t} ###

Question 244 CAPM, SML, NPV, risk

Examine the following graph which shows stocks' betas ##(\beta)## and expected returns ##(\mu)##:

Assume that the CAPM holds and that future expectations of stocks' returns and betas are correctly measured. Which statement is NOT correct?

Question 467 book and market values

Which of the following statements about book and market equity is NOT correct?

(a) The market value of equity of a listed company's common stock is equal to the number of common shares multiplied by the share price.

(b) The book value of equity is the sum of contributed equity, retained profits and reserves.

(c) A company's book value of equity is recorded in its income statement, also known as the 'profit and loss' or the 'statement of financial performance'.

(d) A new company's market value of equity equals its book value of equity the moment that its shares are first sold. From then on, the market value changes continuously but the book value is recorded at historical cost which typically only changes due to retained profits.

(e) To buy all of the firm's shares, generally a price close to the market value of equity will have to be paid.

Question 600 foreign exchange rate

A Chinese man wishes to convert AUD 1 million into Chinese Renminbi (RMB, also called the Yuan (CNY)). The exchange rate is 6.35 RMB per USD, and 0.72 USD per AUD. How much is the AUD 1 million worth in RMB?

Question 639 option, option payoff at maturity, no explanation

Which of the below formulas gives the payoff ##(f)## at maturity ##(T)## from being short a put option? Let the underlying asset price at maturity be ##S_T## and the exercise price be ##X_T##.

Question 652 future, continuously compounding rate

An equity index is currently at 5,200 points. The 6 month futures price is 5,300 points and the total required return is 6% pa with continuous compounding. Each index point is worth $25.

What is the implied dividend yield as a continuously compounded rate per annum?

Question 698 utility, risk aversion, utility function

Mr Blue, Miss Red and Mrs Green are people with different utility functions. Which of the statements about the 3 utility functions is NOT correct?

Question 733 DDM, income and capital returns

A share’s current price is $60. It’s expected to pay a dividend of $1.50 in one year. The growth rate of the dividend is 0.5% pa and the stock’s required total return is 3% pa. The stock’s price can be modeled using the dividend discount model (DDM):

##P_0=\dfrac{C_1}{r-g}##

Which of the following methods is NOT equal to the stock’s expected price in one year and six months (t=1.5 years)? Note that the symbolic formulas shown in each line below do equal the formulas with numbers. The formula is just repeated with symbols and then numbers in case it helps you to identify the incorrect statement more quickly.

Question 817 expected and historical returns, income and capital returns

Over the last year, a constant-dividend-paying stock's price fell, while it's future expected dividends and profit remained the same. Assume that:

Now is ##t=0##, last year is ##t=-1## and next year is ##t=1##;
The dividend is paid at the end of each year, the last dividend was just paid today ##(C_0)## and the next dividend will be paid next year ##(C_1)##;
Markets are efficient and the dividend discount model is suitable for valuing the stock.

Which of the following statements is NOT correct? The stock's:

Question 897 comparative advantage in trade, production possibilities curve, no explanation

Adam and Bella are the only people on a remote island. Their production possibility curves are shown in the graph.

Which of the following statements is NOT correct?