For a price of $100, Rad will sell you a 5 year bond paying semi-annual coupons of 16% pa. The face value of the bond is $100. Other bonds with the same risk, maturity and coupon characteristics trade at a yield of 6% pa.

Bonds X and Y are issued by the same US company. Both bonds yield **10**% pa, and they have the same face value ($100), maturity, seniority, and payment frequency.

The only difference is that bond X and Y's **coupon rates** are **8** and **12**% pa respectively. Which of the following statements is true?

**Question 48** IRR, NPV, bond pricing, premium par and discount bonds, market efficiency

The theory of fixed interest bond pricing is an application of the theory of Net Present Value (NPV). Also, a 'fairly priced' asset is not over- or under-priced. Buying or selling a fairly priced asset has an NPV of zero.

Considering this, which of the following statements is **NOT** correct?

You have $100,000 in the bank. The bank pays interest at 10% pa, given as an effective annual rate.

You wish to consume an equal amount now (t=0) and in one year (t=1) and have nothing left in the bank at the end.

How much can you consume at each time?

This annuity formula ##\dfrac{C_1}{r}\left(1-\dfrac{1}{(1+r)^3} \right)## is equivalent to which of the following formulas? Note the **3**.

In the below formulas, ##C_t## is a cash flow at time t. All of the cash flows are equal, but paid at different times.

**Question 589** future, contango, market efficiency

In general, stock prices tend to rise. What does this mean for futures on equity?

A Chinese man wishes to convert **AUD 1 million** into Chinese Renminbi (RMB, also called the Yuan (CNY)). The exchange rate is **6.35 RMB per USD**, and **0.72 USD per AUD**. How much is the AUD 1 million worth in RMB?

A **one** year European-style **put** option has a strike price of $**4**.

The option's underlying stock currently trades at $**5**, pays no dividends and its standard deviation of continuously compounded returns is **47**% pa.

The risk-free interest rate is **10**% pa continuously compounded.

Use the Black-Scholes-Merton formula to calculate the option price. The put option price now is:

**Question 869** economic order quantity

A Queensland farmer grows strawberries in greenhouses and supplies Australian supermarkets all year round. The farmer must decide how often he should contract the truck driver to deliver his strawberries and how many boxes to send on each delivery. The farmer:

- Sells
**100,000**boxes of strawberries per year; - Incurs holding costs (refrigeration and spoilage) of $
**16**per box per year; and - Must pay the truck driver delivery fees at $
**0.20**per box plus a $**500**fixed fee per delivery.

Which of the following statements about the Economic Order Quantity is **NOT** correct?