You have just sold an 'in the money' 6 month European put option on the mining company BHP at an exercise price of $40 for a premium of $3.
Which of the following statements best describes your situation?
Why is Capital Expenditure (CapEx) subtracted in the Cash Flow From Assets (CFFA) formula?
###CFFA=NI+Depr-CapEx - \Delta NWC+IntExp###
A firm wishes to raise $8 million now. They will issue 7% pa semi-annual coupon bonds that will mature in 10 years and have a face value of $100 each. Bond yields are 10% pa, given as an APR compounding every 6 months, and the yield curve is flat.
How many bonds should the firm issue?
Question 235 SML, NPV, CAPM, risk
The security market line (SML) shows the relationship between beta and expected return.
Investment projects that plot on the SML would have:
Question 319 foreign exchange rate, monetary policy, American and European terms
Investors expect the Reserve Bank of Australia (RBA) to keep the policy rate steady at their next meeting.
Then unexpectedly, the RBA announce that they will increase the policy rate by 25 basis points due to fears that the economy is growing too fast and that inflation will be above their target rate of 2 to 3 per cent.
What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar is likely to:
Question 385 Merton model of corporate debt, real option, option
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.
The levered equity graph above contains bold labels a to e. Which of the following statements about those labels is NOT correct?
The below screenshot of Microsoft's (MSFT) details were taken from the Google Finance website on 28 Nov 2014. Some information has been deliberately blanked out.
What was MSFT's backwards-looking price-earnings ratio?
You just entered into a fully amortising home loan with a principal of $600,000, a variable interest rate of 4.25% pa and a term of 25 years.
Immediately after settling the loan, the variable interest rate suddenly falls to 4% pa! You can't believe your luck. Despite this, you plan to continue paying the same home loan payments as you did before. How long will it now take to pay off your home loan?
Assume that the lower interest rate was granted immediately and that rates were and are now again expected to remain constant. Round your answer up to the nearest whole month.
Which of the following statements about option contracts is NOT correct? For every:
A stock is expected to pay a dividend of $5 per share in 1 month and $5 again in 7 months.
The stock price is $100, and the risk-free rate of interest is 10% per annum with continuous compounding. The yield curve is flat. Assume that investors are risk-neutral.
An investor has just taken a short position in a one year forward contract on the stock.
Find the forward price ##(F_1)## and value of the contract ##(V_0)## initially. Also find the value of the short futures contract in 6 months ##(V_\text{0.5, SF})## if the stock price fell to $90.