A wholesale shop offers credit to its customers. The customers are given 21 days to pay for their goods. But if they pay straight away (now) they get a 1% discount.
What is the effective interest rate given to customers who pay in 21 days? All rates given below are effective annual rates. Assume 365 days in a year.
Question 312 foreign exchange rate, American and European terms
If the current AUD exchange rate is USD 0.9686 = AUD 1, what is the American terms quote of the AUD against the USD?
Stocks in the United States usually pay quarterly dividends. For example, the retailer Wal-Mart Stores paid a $0.47 dividend every quarter over the 2013 calendar year and plans to pay a $0.48 dividend every quarter over the 2014 calendar year.
Using the dividend discount model and net present value techniques, calculate the stock price of Wal-Mart Stores assuming that:
- The time now is the beginning of January 2014. The next dividend of $0.48 will be received in 3 months (end of March 2014), with another 3 quarterly payments of $0.48 after this (end of June, September and December 2014).
- The quarterly dividend will increase by 2% every year, but each quarterly dividend over the year will be equal. So each quarterly dividend paid in 2015 will be $0.4896 (##=0.48×(1+0.02)^1##), with the first at the end of March 2015 and the last at the end of December 2015. In 2016 each quarterly dividend will be $0.499392 (##=0.48×(1+0.02)^2##), with the first at the end of March 2016 and the last at the end of December 2016, and so on forever.
- The total required return on equity is 6% pa.
- The required return and growth rate are given as effective annual rates.
- All cash flows and rates are nominal. Inflation is 3% pa.
- Dividend payment dates and ex-dividend dates are at the same time.
- Remember that there are 4 quarters in a year and 3 months in a quarter.
What is the current stock price?
A European put option will mature in ##T## years with a strike price of ##K## dollars. The underlying asset has a price of ##S## dollars.
What is an expression for the payoff at maturity ##(f_T)## in dollars from owning (being long) the put option?
One and a half years ago Frank bought a house for $600,000. Now it's worth only $500,000, based on recent similar sales in the area.
The expected total return on Frank's residential property is 7% pa.
He rents his house out for $1,600 per month, paid in advance. Every 12 months he plans to increase the rental payments.
The present value of 12 months of rental payments is $18,617.27.
The future value of 12 months of rental payments one year in the future is $19,920.48.
What is the expected annual rental yield of the property? Ignore the costs of renting such as maintenance, real estate agent fees and so on.
Question 578 inflation, real and nominal returns and cash flows
Which of the following statements about inflation is NOT correct?
Assets A, B, M and ##r_f## are shown on the graphs above. Asset M is the market portfolio and ##r_f## is the risk free yield on government bonds. Assume that investors can borrow and lend at the risk free rate. Which of the below statements is NOT correct?
Question 821 option, option profit, option payoff at maturity, no explanation
You just paid $4 for a 3 month European style call option on a stock currently priced at $47 with a strike price of $50. The stock’s next dividend will be $1 in 4 months’ time. Note that the dividend is paid after the option matures. Which of the below statements is NOT correct?
Question 963 Bretton Woods, foreign exchange rate, foreign exchange system history, no explanation
Under the Bretton Woods System (1944 to 1971), currencies were priced relative to: