# Fight Finance

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For a price of $100, Andrea will sell you a 2 year bond paying annual coupons of 10% 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.

Would you like to the bond or politely ?

The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.

$$p_{0} = \frac{c_1}{r_{\text{eff}} - g_{\text{eff}}}$$

What is the discount rate '$r_\text{eff}$' in this equation?

The 'futures price' in a futures contract is paid at the start when the futures contract is agreed to. or ?

The market expects the Reserve Bank of Australia (RBA) to decrease the policy rate by 25 basis points at their next meeting.

Then unexpectedly, the RBA announce that they will decrease the policy rate by 50 basis points due to fears of a recession and deflation.

What do you expect to happen to Australia's exchange rate? The Australian dollar will:

Which one of the following will have no effect on net income (NI) but decrease cash flow from assets (CFFA or FFCF) in this year for a tax-paying firm, all else remaining constant?

Remember:

$$NI=(Rev-COGS-FC-Depr-IntExp).(1-t_c )$$ $$CFFA=NI+Depr-CapEx - ΔNWC+IntExp$$

In the Merton model of corporate debt, buying a levered company's debt is equivalent to buying the company's assets and:

A risk manager has identified that their hedge fund’s continuously compounded portfolio returns are normally distributed with a mean of 10% pa and a standard deviation of 30% pa. The hedge fund’s portfolio is currently valued at $100 million. Assume that there is no estimation error in these figures and that the normal cumulative density function at 1.644853627 is 95%. Which of the following statements is NOT correct? All answers are rounded to the nearest dollar. You intend to use futures on oil to hedge the risk of purchasing oil. There is no cross-hedging risk. Oil pays no dividends but it’s costly to store. Which of the following statements about basis risk in this scenario is NOT correct? Question 906 effective rate, return types, net discrete return, return distribution, price gains and returns over time For an asset's price to double from say$1 to \$2 in one year, what must its effective annual return be? Note that an effective annual return is also called a net discrete return per annum. If the price now is $P_0$ and the price in one year is $P_1$ then the effective annul return over the next year is:

$$r_\text{effective annual} = \dfrac{P_1 - P_0}{P_0} = \text{NDR}_\text{annual}$$

Observe the below graph of the US current account surplus as a proportion of GDP.

Define lending as buying (or saving or investing in) debt and equity assets.

The sum of US ‘net private saving’ plus ‘net general government lending’ equals the US: