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Question 130  debt terminology

An 'interest rate' is the same thing as a 'yield'. or ?


Question 156  APR, effective rate

A 2 year government bond yields 5% pa with a coupon rate of 6% pa, paid semi-annually.

Find the effective six month rate, effective annual rate and the effective daily rate. Assume that each month has 30 days and that there are 360 days in a year.

All answers are given in the same order:

##r_\text{eff semi-annual}##, ##r_\text{eff yrly}##, ##r_\text{eff daily}##.



Question 186  DDM, income and capital returns

Here's the Dividend Discount Model, used to price stocks:

### p_0=\frac{d_1}{r-g} ###

All rates are effective annual rates and the cash flows (##d_1##) are received every year. Note that the r and g terms in the above DDM could also be labelled: ###r = r_{\text{total, 0}\rightarrow\text{1yr, eff 1yr}}### ###g = r_{\text{capital, 0}\rightarrow\text{1yr, eff 1yr}}### Which of the following statements is NOT correct?



Question 266  bond pricing, premium par and discount bonds

Bonds X and Y are issued by the same 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 pays coupons of 6% pa and bond Y pays coupons of 8% pa. Which of the following statements is true?



Question 364  PE ratio, Multiples valuation

Which firms tend to have high forward-looking price-earnings (PE) ratios?



Question 440  option, no explanation

Two put options are exactly the same, but one has a low and the other has a high exercise price. Which option would you expect to have the higher price, the option with the or exercise price, or should they have the price?


Question 609  debt terminology

You deposit cash into your bank account. Have you or debt?


Question 681  no explanation

A trader sells one crude oil European style put option contract on the CME expiring in one year with an exercise price of $44 per barrel for a price of $6.64. The crude oil spot price is $40.33. If the trader doesn’t close out her contract before maturity, then at maturity she will have the:



Question 844  gross domestic product deflator, consumer price index, inflation, no explanation

An Australian-owned company produces milk in New Zealand and exports all of it to China. If the price of the milk increases, which of the following would increase?



Question 904  option, Black-Scholes-Merton option pricing, option on future on stock index

A six month European-style call option on six month S&P500 index futures has a strike price of 2800 points.

The six month futures price on the S&P500 index is currently at 2740.805274 points. The futures underlie the call option.

The S&P500 stock index currently trades at 2700 points. The stock index underlies the futures. The stock index's standard deviation of continuously compounded returns is 25% pa.

The risk-free interest rate is 5% pa continuously compounded.

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