You operate a cattle farm that supplies hamburger meat to the big fast food chains. You buy a lot of grain to feed your cattle, and you sell the fully grown cattle on the livestock market.
You're afraid of adverse movements in grain and livestock prices. What options should you buy to hedge your exposures in the grain and cattle livestock markets?
Select the most correct response:
The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.
###p_0=\frac{d_1}{r_\text{eff}-g_\text{eff}}###
Which expression is NOT equal to the expected capital return?
You just signed up for a 30 year fully amortising mortgage loan with monthly payments of $2,000 per month. The interest rate is 9% pa which is not expected to change.
How much did you borrow? After 5 years, how much will be owing on the mortgage? The interest rate is still 9% and is not expected to change.
High risk firms in danger of bankruptcy tend to have:
The perpetuity with growth formula, also known as the dividend discount model (DDM) or Gordon growth model, is appropriate for valuing a company's shares. ##P_0## is the current share price, ##C_1## is next year's expected dividend, ##r## is the total required return and ##g## is the expected growth rate of the dividend.
###P_0=\dfrac{C_1}{r-g}###
The below graph shows the expected future price path of the company's shares. Which of the following statements about the graph is NOT correct?
An investor bought a 10 year 2.5% pa fixed coupon government bond priced at par. The face value is $100. Coupons are paid semi-annually and the next one is in 6 months.
Six months later, just after the coupon at that time was paid, yields suddenly and unexpectedly fell to 2% pa. Note that all yields above are given as APR's compounding semi-annually.
What was the bond investors' historical total return over that first 6 month period, given as an effective semi-annual rate?
You deposit money into a bank. Which of the following statements is NOT correct? You:
A stock is expected to pay a dividend of $1 in one year. Its future annual dividends are expected to grow by 10% pa. So the first dividend of $1 is in one year, and the year after that the dividend will be $1.1 (=1*(1+0.1)^1), and a year later $1.21 (=1*(1+0.1)^2) and so on forever.
Its required total return is 30% pa. The total required return and growth rate of dividends are given as effective annual rates. The stock is fairly priced.
Calculate the pay back period of buying the stock and holding onto it forever, assuming that the dividends are received as at each time, not smoothly over each year.
A company has a 95% daily Value at Risk (VaR) of $1 million. The units of this VaR are in:
Question 888 foreign exchange rate, speculation, no explanation
The current Australian exchange rate is 0.8 USD per AUD.
If you think that the AUD will depreciate against the USD, contrary to the rest of the market, how could you profit? Right now you should: