# Fight Finance

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All things remaining equal, the variance of a portfolio of two positively-weighted stocks rises as:

A 90-day Bank Accepted Bill (BAB) has a face value of $1,000,000. The simple interest rate is 10% pa and there are 365 days in the year. What is its price now? A project has an internal rate of return (IRR) which is greater than its required return. Select the most correct statement. Do you think that the following statement is or ? “Buying a single company stock usually provides a safer return than a stock mutual fund.” Your friend just bought a house for$1,000,000. He financed it using a $900,000 mortgage loan and a deposit of$100,000.

In the context of residential housing and mortgages, the 'equity' or 'net wealth' tied up in a house is the value of the house less the value of the mortgage loan. Assuming that your friend's only asset is his house, his net wealth is \$100,000.

If house prices suddenly fall by 15%, what would be your friend's percentage change in net wealth?

Assume that:

• No income (rent) was received from the house during the short time over which house prices fell.
• Your friend will not declare bankruptcy, he will always pay off his debts.

Let the variance of returns for a share per month be $\sigma_\text{monthly}^2$.

What is the formula for the variance of the share's returns per year $(\sigma_\text{yearly}^2)$?

Assume that returns are independently and identically distributed (iid) so they have zero auto correlation, meaning that if the return was higher than average today, it does not indicate that the return tomorrow will be higher or lower than average.

If the AUD appreciates against the USD, the European terms quote of the AUD will or ?

Assets A, B, M and $r_f$ are shown on the graphs above. Asset M is the market portfolio and $r_f$ is the risk free yield on government bonds. Assume that investors can borrow and lend at the risk free rate. Which of the below statements is NOT correct?

An equity index stands at 100 points and the one year equity futures price is 102.

The equity index is expected to have a dividend yield of 4% pa. Assume that investors are risk-neutral so their total required return on the shares is the same as the risk free Treasury bond yield which is 10% pa. Both are given as discrete effective annual rates.

Assuming that the equity index is fairly priced, an arbitrageur would recognise that the equity futures are:

Which of the following quantities is commonly assumed to be normally distributed?