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} ###

Some countries' interest rates are so low that they're zero.

If interest rates are **0**% pa and are expected to stay at that level for the foreseeable future, what is the most that you would be prepared to pay a bank now if it offered to pay you $**10** at the end of every year for the next **5** years?

In other words, what is the present value of five $10 payments at time 1, 2, 3, 4 and 5 if interest rates are 0% pa?

You have $**100,000** in the bank. The bank pays interest at **10**% pa, given as an effective annual rate.

You wish to consume **twice** as much now (t=0) as in one year (t=1) and have nothing left in the bank at the end.

How much can you consume at time zero and one? The answer choices are given in the same order.

In 2014 the median starting salaries of male and female Australian bachelor degree accounting graduates aged less than 25 years in their first full-time industry job was $50,000 before tax, according to Graduate Careers Australia. See page 9 of this report. Personal income tax rates published by the Australian Tax Office are reproduced for the 2014-2015 financial year in the table below.

Taxable income | Tax on this income |
---|---|

0 – $18,200 | Nil |

$18,201 – $37,000 | 19c for each $1 over $18,200 |

$37,001 – $80,000 | $3,572 plus 32.5c for each $1 over $37,000 |

$80,001 – $180,000 | $17,547 plus 37c for each $1 over $80,000 |

$180,001 and over | $54,547 plus 45c for each $1 over $180,000 |

The above rates do not include the Medicare levy of 2%. Exclude the Medicare levy from your calculations

How much personal income tax would you have to pay per year if you earned $50,000 per annum before-tax?

Which of the below formulas gives the payoff at maturity ##(f_T)## from being **long** a future? Let the underlying asset price at maturity be ##S_T## and the locked-in futures price be ##K_T##.

A trader **sells** a one year futures contract on crude oil. The contract is for the delivery of 1,000 barrels. The current futures price is $38.94 per barrel. The initial margin is $3,410 per contract, and the maintenance margin is $3,100 per contract.

What is the smallest price change that would lead to a margin call for the seller?

**Question 743** price gains and returns over time, no explanation

How many years will it take for an asset's price to **triple** (increase from say $1 to $3) if it grows by **5**% pa?

**Question 823** option, option payoff at maturity, option profit, no explanation

A European **call** option should only be exercised if: