A person is thinking about borrowing $100 from the bank at 7% pa and investing it in shares with an expected return of 10% pa. One year later the person intends to sell the shares and pay back the loan in full. Both the loan and the shares are fairly priced.
What is the Net Present Value (NPV) of this one year investment? Note that you are asked to find the present value (##V_0##), not the value in one year (##V_1##).
A three year corporate bond yields 12% pa with a coupon rate of 10% pa, paid semi-annually.
Find the effective six month yield, effective annual yield and the effective daily yield. Assume that each month has 30 days and that there are 360 days in a year.
All answers are given in the same order:
##r_\text{eff semi-annual}##, ##r_\text{eff yearly}##, ##r_\text{eff daily}##.
You want to buy a house priced at $400,000. You have saved a deposit of $40,000. The bank has agreed to lend you $360,000 as a fully amortising loan with a term of 30 years. The interest rate is 8% pa payable monthly and is not expected to change.
What will be your monthly payments?
Question 433 Merton model of corporate debt, real option, option, no explanation
A risky firm will last for one period only (t=0 to 1), then it will be liquidated. So it's assets will be sold and the debt holders and equity holders will be paid out in that order. The firm has the following quantities:
##V## = Market value of assets.
##E## = Market value of (levered) equity.
##D## = Market value of zero coupon bonds.
##F_1## = Total face value of zero coupon bonds which is promised to be paid in one year.
What is the payoff to equity holders at maturity, assuming that they keep their shares until maturity?
Question 568 rights issue, capital raising, capital structure
A company conducts a 1 for 5 rights issue at a subscription price of $7 when the pre-announcement stock price was $10. What is the percentage change in the stock price and the number of shares outstanding? The answers are given in the same order. Ignore all taxes, transaction costs and signalling effects.
A man just sold a call option to his counterparty, a lady. The man has just now:
Question 877 arithmetic and geometric averages, utility, utility function
Gross discrete returns in different states of the world are presented in the table below. A gross discrete return is defined as ##P_1/P_0##, where ##P_0## is the price now and ##P_1## is the expected price in the future. An investor can purchase only a single asset, A, B, C or D. Assume that a portfolio of assets is not possible.
| Gross Discrete Returns | ||
| In Different States of the World | ||
| Investment | World states (probability) | |
| asset | Good (50%) | Bad (50%) |
| A | 2 | 0.5 |
| B | 1.1 | 0.9 |
| C | 1.1 | 0.95 |
| D | 1.01 | 1.01 |
Which of the following statements about the different assets is NOT correct? Asset:
Question 892 foreign exchange reserve, foreign exchange rate, no explanation
The Chinese central bank has the largest amount of foreign currency reserves.
What could the large amounts of foreign exchange reserves held by the Chinese government be used for in a currency crisis? China's currency is called the Renminbi (RMB) or Yuan (CNY). In a Chinese currency crisis the Chinese government is likely to use its FX reserves to:
By convention, money market securities' yields are always quoted as: