A project has an internal rate of return (IRR) which is greater than its required return. Select the most correct statement.
Question 246 foreign exchange rate, forward foreign exchange rate, cross currency interest rate parity
Suppose the Australian cash rate is expected to be 8.15% pa and the US federal funds rate is expected to be 3.00% pa over the next 2 years, both given as nominal effective annual rates. The current exchange rate is at parity, so 1 USD = 1 AUD.
What is the implied 2 year forward foreign exchange rate?
A 90-day $1 million Bank Accepted Bill (BAB) was bought for $990,000 and sold 30 days later for $996,000 (at t=30 days).
What was the total return, capital return and income return over the 30 days it was held?
Despite the fact that money market instruments such as bills are normally quoted with simple interest rates, please calculate your answers as compound interest rates, specifically, as effective 30-day rates, which is how the below answer choices are listed.
##r_\text{total}##, ##r_\text{capital}##, ## r_\text{income}##
Your friend just bought a house for $1,000,000. He financed it using a $900,000 mortgage loan and a deposit of $100,000.
In the context of residential housing and mortgages, the 'equity' or 'net wealth' tied up in a house is the value of the house less the value of the mortgage loan. Assuming that your friend's only asset is his house, his net wealth is $100,000.
If house prices suddenly fall by 15%, what would be your friend's percentage change in net wealth?
Assume that:
- No income (rent) was received from the house during the short time over which house prices fell.
- Your friend will not declare bankruptcy, he will always pay off his debts.
Your poor friend asks to borrow some money from you. He would like $1,000 now (t=0) and every year for the next 5 years, so there will be 6 payments of $1,000 from t=0 to t=5 inclusive. In return he will pay you $10,000 in seven years from now (t=7).
What is the net present value (NPV) of lending to your friend?
Assume that your friend will definitely pay you back so the loan is risk-free, and that the yield on risk-free government debt is 10% pa, given as an effective annual rate.
Which one of the below statements about effective rates and annualised percentage rates (APR's) is NOT correct?
A $100 stock has a continuously compounded expected total return of 10% pa. Its dividend yield is 2% pa with continuous compounding. What do you expect its price to be in one year?
A firm has a debt-to-assets ratio of 20%. What is its debt-to-equity ratio?
Question 790 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate, log-normal distribution, VaR, confidence interval
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.