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Question 132 bill pricing, simple interest rate

A 90-day Bank Accepted Bill (BAB) has a face value of $1,000,000. The simple interest rate is 10% pa and there are 365 days in the year. What is its price now?

Question 174 profitability index

A project has the following cash flows:

Project Cash Flows
Time (yrs)	Cash flow ($)
0	-400
1	200
2	250

What is the Profitability Index (PI) of the project? Assume that the cash flows shown in the table are paid all at once at the given point in time. The required return is 10% pa, given as an effective annual rate.

Question 256 APR, effective rate

A 2 year corporate bond yields 3% pa with a coupon rate of 5% pa, paid semi-annually.

Find the effective monthly rate, effective six month rate, and effective annual rate.

##r_\text{eff monthly}##, ##r_\text{eff 6 month}##, ##r_\text{eff annual}##.

Question 602 foreign exchange rate, American and European terms

Question 722 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate

Here is a table of stock prices and returns. Which of the statements below the table is NOT correct?

Price and Return Population Statistics
Time	Prices	LGDR	GDR	NDR
0	100
1	50	-0.6931	0.5	-0.5
2	100	0.6931	2	1

Arithmetic average		0	1.25	0.25
Arithmetic standard deviation		0.9802	1.0607	1.0607

(a) The geometric average of the gross discrete returns (GAGDR) equals 1 which is 100%.

(b) ##\text{GAGDR} = \exp \left( \text{AALGDR} \right)##. The GAGDR is equal to the natural exponent of the arithmetic average of the logarithms of the gross discrete returns (AALGDR).

(c) ##\text{GAGDR} = \left( P_T/P_0 \right)^{1/T}##. The GAGDR equals the ratio of the last and first prices raised to the power of the inverse of the number of time periods between them.

(d) ##\text{LGAGDR} = \text{AALGDR}##. This is always true, regardless of the distribution of the prices or returns and the number of return observations. The logarithm of the geometric average of the gross discrete returns (LGAGDR) is always equal to the arithmetic average of the logarithms of the gross discrete returns (AALGDR).

(e) ##\text{LAAGDR} = \text{AALGDR} + \text{SDLGDR}^2/2##. This is always true, regardless of the distribution of the prices or returns and the number of return observations. The logarithm of the arithmetic average of the gross discrete returns (LAAGDR) equals the arithmetic average of the logarithms of the gross discrete returns (AALGDR) plus half the variance of the LGDR's.

Question 742 price gains and returns over time, no explanation

For an asset's price to quintuple (be five times as big, say from $1 to $5) every 5 years, what must be its effective annual capital return?

Question 782 portfolio return, portfolio weights

An investor owns a portfolio with:

80% invested in stock A; and
20% invested in stock B.

Today there was a:

10% rise in stock A's price; and
No change in stock B's price.

No dividends were paid on either stock. What was the total historical portfolio return on this day? All returns above and answer options below are given as effective daily rates.

Question 825 future, hedging, tailing the hedge, speculation, no explanation

An equity index fund manager controls a USD500 million diversified equity portfolio with a beta of 0.9. The equity manager expects a significant rally in equity prices next year. The market does not think that this will happen. If the fund manager wishes to increase his portfolio beta to 1.5, how many S&P500 futures should he buy?

The US market equity index is the S&P500. One year CME futures on the S&P500 currently trade at 2,155 points and the spot price is 2,180 points. Each point is worth $250.

The number of one year S&P500 futures contracts that the fund manager should buy is:

Question 848 monetary policy, no explanation

Which of the following is NOT the Australian central bank’s responsibility?

Question 946 stock split, bonus issue, stock dividend