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.
Question 244 CAPM, SML, NPV, risk
Examine the following graph which shows stocks' betas ##(\beta)## and expected returns ##(\mu)##:
Assume that the CAPM holds and that future expectations of stocks' returns and betas are correctly measured. Which statement is NOT correct?
Question 381 Merton model of corporate debt, option, real option
In the Merton model of corporate debt, buying a levered company's debt is equivalent to buying risk free government bonds and:
Question 445 financing decision, corporate financial decision theory
The financing decision primarily affects which part of a business?
Question 767 idiom, corporate financial decision theory, no explanation
The sayings "Don't cry over spilt milk", "Don't regret the things that you can't change" and "What's done is done" are most closely related to which financial concept?
Question 779 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate
Fred owns some BHP shares. He has calculated BHP’s monthly returns for each month in the past 30 years using this formula:
###r_\text{t monthly}=\ln \left( \dfrac{P_t}{P_{t-1}} \right)###He then took the arithmetic average and found it to be 0.8% per month using this formula:
###\bar{r}_\text{monthly}= \dfrac{ \displaystyle\sum\limits_{t=1}^T{\left( r_\text{t monthly} \right)} }{T} =0.008=0.8\% \text{ per month}###He also found the standard deviation of these monthly returns which was 15% per month:
###\sigma_\text{monthly} = \dfrac{ \displaystyle\sum\limits_{t=1}^T{\left( \left( r_\text{t monthly} - \bar{r}_\text{monthly} \right)^2 \right)} }{T} =0.15=15\%\text{ per month}###Assume that the past historical average return is the true population average of future expected returns and the stock's returns calculated above ##(r_\text{t monthly})## are normally distributed. Which of the below statements about Fred’s BHP shares is NOT correct?
Question 872 duration, Macaulay duration, modified duration, portfolio duration
A fixed coupon bond’s modified duration is 20 years, and yields are currently 10% pa compounded annually. Which of the following statements about the bond is NOT correct?
Question 988 variance, covariance, beta, CAPM, risk, no explanation
Price Data Time Series | |||||||||||
Sourced from Yahoo Finance Historical Price Data | |||||||||||
Date | S&P500 Index (^GSPC) | Apple (AAPL) | |||||||||
Open | High | Low | Close | Adj close | Open | High | Low | Close | Adj close | ||
2007, Wed 3 Jan | 1418 | 1429 | 1408 | 1417 | 1417 | 12.33 | 12.37 | 11.7 | 11.97 | 10.42 | |
2008, Wed 2 Jan | 1468 | 1472 | 1442 | 1447 | 1447 | 28.47 | 28.61 | 27.51 | 27.83 | 24.22 | |
2009, Fri 2 Jan | 903 | 935 | 899 | 932 | 932 | 12.27 | 13.01 | 12.17 | 12.96 | 11.28 | |
2010, Mon 4 Jan | 1117 | 1134 | 1117 | 1133 | 1133 | 30.49 | 30.64 | 30.34 | 30.57 | 26.6 | |
Source: Yahoo Finance. | |||||||||||
Which of the following statements about the above table which is used to calculate Apple's equity beta is NOT correct?