# Fight Finance

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An Australian company just issued two bonds:

• A 1 year zero coupon bond at a yield of 10% pa, and
• A 2 year zero coupon bond at a yield of 8% pa.

What is the forward rate on the company's debt from years 1 to 2? Give your answer as an APR compounding every 6 months, which is how the above bond yields are quoted.

The security market line (SML) shows the relationship between beta and expected return.

Investment projects that plot above the SML would have:

A 30 year Japanese government bond was just issued at par with a yield of 1.7% pa. The fixed coupon payments are semi-annual. The bond has a face value of \$100.

Six months later, just after the first coupon is paid, the yield of the bond increases to 2% pa. What is the bond's new price?

A new company's Firm Free Cash Flow (FFCF, same as CFFA) is forecast in the graph below. To value the firm's assets, the terminal value needs to be calculated using the perpetuity with growth formula:

$$V_{\text{terminal, }t-1} = \dfrac{FFCF_{\text{terminal, }t}}{r-g}$$

Which point corresponds to the best time to calculate the terminal value?

For an asset price to triple every 5 years, what must be the expected future capital return, given as an effective annual rate?

A credit card company advertises an interest rate of 18% pa, payable monthly. Which of the following statements about the interest rate is NOT correct? All rates are given to four decimal places.

Which of the following statements about option contracts is NOT correct? For every:

To value a business's assets, the free cash flow of the firm (FCFF, also called CFFA) needs to be calculated. This requires figures from the firm's income statement and balance sheet. For what figures is the balance sheet needed? Note that the balance sheet is sometimes also called the statement of financial position.

Which of the following statements about probability distributions is NOT correct?

When does a European option's last-traded market price become a sunk cost?