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Question 134 fully amortising loan, APR

You want to buy an apartment worth $400,000. You have saved a deposit of $80,000. The bank has agreed to lend you the $320,000 as a fully amortising mortgage loan with a term of 30 years. The interest rate is 6% pa and is not expected to change. What will be your monthly payments?

Question 136 income and capital returns

A stock was bought for $8 and paid a dividend of $0.50 one year later (at t=1 year). Just after the dividend was paid, the stock price was $7 (at t=1 year).

What were the total, capital and dividend returns given as effective annual rates? The choices are given in the same order:

##r_\text{total}##, ##r_\text{capital}##, ##r_\text{dividend}##.

Question 204 time calculation, fully amortising loan, APR

You just signed up for a 30 year fully amortising mortgage loan with monthly payments of $1,500 per month. The interest rate is 9% pa which is not expected to change.

To your surprise, you can actually afford to pay $2,000 per month and your mortgage allows early repayments without fees. If you maintain these higher monthly payments, how long will it take to pay off your mortgage?

Question 467 book and market values

Which of the following statements about book and market equity is NOT correct?

(a) The market value of equity of a listed company's common stock is equal to the number of common shares multiplied by the share price.

(b) The book value of equity is the sum of contributed equity, retained profits and reserves.

(c) A company's book value of equity is recorded in its income statement, also known as the 'profit and loss' or the 'statement of financial performance'.

(d) A new company's market value of equity equals its book value of equity the moment that its shares are first sold. From then on, the market value changes continuously but the book value is recorded at historical cost which typically only changes due to retained profits.

(e) To buy all of the firm's shares, generally a price close to the market value of equity will have to be paid.

Question 562 covariance

What is the covariance of a variable X with itself?

The cov(X, X) or ##\sigma_{X,X}## equals:

Question 666 rights issue, capital raising

A company conducts a 2 for 3 rights issue at a subscription price of $8 when the pre-announcement stock price was $9. Assume that all investors use their rights to buy those extra shares.

What is the percentage increase in the stock price and the number of shares outstanding? The answers are given in the same order.

Question 735 debt terminology

You deposit money into a bank. Which of the following statements is NOT correct? You:

Question 810 CAPM, systematic and idiosyncratic risk, market efficiency

Examine the graphs below. Assume that asset A is a single stock. Which of the following statements is NOT correct? Asset A:

Question 890 foreign exchange rate, monetary policy, no explanation

The market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting. The current exchange rate is 0.8 USD per AUD.

Then unexpectedly, the RBA announce that they will increase the policy rate by 50 basis points due to increased fears of inflation.

What do you expect to happen to Australia's exchange rate on the day when the surprise announcement is made? The Australian dollar is likely to suddenly:

Question 956 option, Black-Scholes-Merton option pricing, delta hedging, hedging

A bank sells a European call option on a non-dividend paying stock and delta hedges on a daily basis. Below is the result of their hedging, with columns representing consecutive days. Assume that there are 365 days per year and interest is paid daily in arrears.

Delta Hedging a Short Call using Stocks and Debt

Description	Symbol	Days to maturity (T in days)
		60	59	58	57	56	55
Spot price ($)	S	10000	10125	9800	9675	10000	10000
Strike price ($)	K	10000	10000	10000	10000	10000	10000
Risk free cont. comp. rate (pa)	r	0.05	0.05	0.05	0.05	0.05	0.05
Standard deviation of the stock's cont. comp. returns (pa)	σ	0.4	0.4	0.4	0.4	0.4	0.4
Option maturity (years)	T	0.164384	0.161644	0.158904	0.156164	0.153425	0.150685
Delta	N[d1] = dc/dS	0.552416	0.582351	0.501138	0.467885	0.550649	0.550197
Probability that S > K at maturity in risk neutral world	N[d2]	0.487871	0.51878	0.437781	0.405685	0.488282	0.488387
Call option price ($)	c	685.391158	750.26411	567.990995	501.487157	660.982878	?
Stock investment value ($)	N[d1]*S	5524.164129	5896.301781	4911.152036	4526.788065	5506.488143	?
Borrowing which partly funds stock investment ($)	N[d2]K/e^(rT)	4838.772971	5146.037671	4343.161041	4025.300909	4845.505265	?
Interest expense from borrowing paid in arrears ($)	rN[d2]K/e^(r*T)		0.662891	0.704985	0.594994	0.551449	?
Gain on stock ($)	N[d1]*(SNew - SOld)		69.052052	-189.264008	-62.642245	152.062648	?
Gain on short call option ($)	-1*(cNew - cOld)		-64.872952	182.273114	66.503839	-159.495721	?
Net gain ($)	Gains - InterestExpense		3.516209	-7.695878	3.266599	-7.984522	?

Gamma	Γ = d^2c/dS^2	0.000244	0.00024	0.000255	0.00026	0.000253	0.000255
Theta	θ = dc/dT	2196.873429	2227.881353	2182.174706	2151.539751	2266.589184	2285.1895

In the last column when there are 55 days left to maturity there are missing values. Which of the following statements about those missing values is NOT correct?