Question 143 bond pricing, zero coupon bond, term structure of interest rates, forward interest rate
An Australian company just issued two bonds:
- A 6-month zero coupon bond at a yield of 6% pa, and
- A 12 month zero coupon bond at a yield of 7% pa.
What is the company's forward rate from 6 to 12 months? Give your answer as an APR compounding every 6 months, which is how the above bond yields are quoted.
Question 154 implicit interest rate in wholesale credit, no explanation
A wholesale vitamin supplements store offers credit to its customers. Customers are given 30 days to pay for their goods, but if they pay within 5 days they will get a 1% discount.
What is the effective interest rate implicit in the discount being offered? Assume 365 days in a year and that all customers pay on either the 5th day or the 30th day. All of the below answer choices are given as effective annual interest rates.
A three year bond has a fixed coupon rate of 12% pa, paid semi-annually. The bond's yield is currently 6% pa. The face value is $100. What is its price?
You just signed up for a 30 year fully amortising mortgage loan with monthly payments of $2,000 per month. The interest rate is 9% pa which is not expected to change.
How much did you borrow? After 5 years, how much will be owing on the mortgage? The interest rate is still 9% and is not expected to change.
Question 244 CAPM, SML, NPV, risk
Examine the following graph which shows stocks' betas ##(\beta)## and expected returns ##(\mu)##:
Assume that the CAPM holds and that future expectations of stocks' returns and betas are correctly measured. Which statement is NOT correct?
A low-quality second-hand car can be bought now for $1,000 and will last for 1 year before it will be scrapped for nothing.
A high-quality second-hand car can be bought now for $4,900 and it will last for 5 years before it will be scrapped for nothing.
What is the equivalent annual cost of each car? Assume a discount rate of 10% pa, given as an effective annual rate.
The answer choices are given as the equivalent annual cost of the low-quality car and then the high quality car.
A man just sold a call option to his counterparty, a lady. The man has just now:
A company has a 95% daily Value at Risk (VaR) of $1 million. The units of this VaR are in: