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According to the theory of the Capital Asset Pricing Model (CAPM), total risk can be broken into two components, systematic risk and idiosyncratic risk. Which of the following events would be considered a systematic, undiversifiable event according to the theory of the CAPM?

In the dividend discount model:

$$P_0= \frac{d_1}{r-g}$$

The pronumeral $g$ is supposed to be the:

The perpetuity with growth formula is:

$$P_0= \dfrac{C_1}{r-g}$$

Which of the following is NOT equal to the total required return (r)?

Two call options are exactly the same, but one matures in one year and the other matures in two years. Which option would you expect to have the higher price, the option which matures or , or should they have the price?

The investment decision primarily affects which part of a business?

The Australian cash rate is expected to be 2% pa over the next one year, while the US cash rate is expected to be 0% pa, both given as nominal effective annual rates. The current exchange rate is 0.73 USD per AUD.

What is the implied 1 year USD per AUD forward foreign exchange rate?

Which of the below formulas gives the profit $(\pi)$ from being long a put option? Let the underlying asset price at maturity be $S_T$, the exercise price be $X_T$ and the option price be $f_{LP,0}$. Note that $S_T$, $X_T$ and $f_{LP,0}$ are all positive numbers.

You deposit money into a bank account. Which of the following statements about this deposit is NOT correct?

Below is a graph of 3 peoples’ utility functions, Mr Blue (U=W^(1/2) ), Miss Red (U=W/10) and Mrs Green (U=W^2/1000). Assume that each of them currently have \$50 of wealth.

Which of the following statements about them is NOT correct?

(a) Mr Blue would prefer to invest his wealth in a well diversified portfolio of stocks rather than a single stock, assuming that all stocks had the same total risk and return.

The below table summarises the borrowing costs confronting two companies A and B.

 Bond Market Yields Fixed Yield to Maturity (%pa) Floating Yield (%pa) Firm A 3 L - 0.4 Firm B 5 L + 1

Firm A wishes to borrow at a floating rate and Firm B wishes to borrow at a fixed rate. Design an intermediated swap (which means there will actually be two swaps) that nets a bank 0.1% and shares the remaining swap benefits between Firms A and B equally. Which of the following statements about the swap is NOT correct?