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} ###
Bonds A and B are issued by the same company. They have the same face value, maturity, seniority and coupon payment frequency. The only difference is that bond A has a 5% coupon rate, while bond B has a 10% coupon rate. The yield curve is flat, which means that yields are expected to stay the same.
Which bond would have the higher current price?
Question 64 inflation, real and nominal returns and cash flows, APR, effective rate
In Germany, nominal yields on semi-annual coupon paying Government Bonds with 2 years until maturity are currently 0.04% pa.
The inflation rate is currently 1.4% pa, given as an APR compounding per quarter. The inflation rate is not expected to change over the next 2 years.
What is the real yield on these bonds, given as an APR compounding every 6 months?
Question 245 foreign exchange rate, monetary policy, foreign exchange rate direct quote, no explanation
Investors expect Australia's central bank, the RBA, to leave the policy rate unchanged at their next meeting.
Then unexpectedly, the policy rate is reduced due to fears that Australia's GDP growth is slowing.
What do you expect to happen to Australia's exchange rate? Direct and indirect quotes are given from the perspective of an Australian.
The Australian dollar will:
You have $100,000 in the bank. The bank pays interest at 10% pa, given as an effective annual rate.
You wish to consume an equal amount now (t=0), in one year (t=1) and in two years (t=2), and still have $50,000 in the bank after that (t=2).
How much can you consume at each time?
Being long a call and short a put which have the same exercise prices and underlying stock is equivalent to being:
Question 954 option, at the money option
| Major City Apartment Prices | |||
| One bedroom, one bathroom, around 55 square metre floor space, Dec 2018 | |||
| City | Advertised price | Currency | FX quote |
| London, Great Britain | 995,500 | GBP | 1.3 USD per GBP |
| Paris, France | 639,000 | EUR | 0.88 USD per EUR |
| San Francisco, USA | 859,000 | USD | 1 USD per USD |
| Shanghai, China | 6,300,000 | RMB | 6.9 RMB per USD |
| Sydney, Australia | 670,000 | AUD | 0.72 USD per AUD |
| Tokyo, Japan | 50,800,000 | JPY | 112 JPY per USD |
Which city has the most expensive apartment, measured in United States Dollars (USD)? Pay attention to the FX quotes.
Question 965 foreign exchange reserve, foreign exchange rate, no explanation
Observe the below graph of Chinese foreign exchange reserves held by the central bank, as well as the Chinese currency the Yuan (CNY, also called the Renminbi, RMB) against the US Dollar. Note the inverted y-axis scale on the Yuan exchange rate graph.
Which of the below statements is NOT correct?