A text book publisher is thinking of asking some teachers to write a new textbook at a cost of $100,000, payable now. The book would be written, printed and ready to sell to students in 2 years. It will be ready just before semester begins.
A cash flow of $100 would be made from each book sold, after all costs such as printing and delivery. There are 600 students per semester. Assume that every student buys a new text book. Remember that there are 2 semesters per year and students buy text books at the beginning of the semester.
Assume that text book publishers will sell the books at the same price forever and that the number of students is constant.
If the discount rate is 8% pa, given as an effective annual rate, what is the NPV of the project?
In these tough economic times, central banks around the world have cut interest rates so low that they are practically zero. In some countries, government bond yields are also very close to zero.
A three year government bond with a face value of $100 and a coupon rate of 2% pa paid semi-annually was just issued at a yield of 0%. What is the price of the bond?
A fairly priced stock has an expected return equal to the market's. Treasury bonds yield 5% pa and the market portfolio's expected return is 10% pa. What is the stock's beta?
A European call 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 call option?
Question 522 income and capital returns, real and nominal returns and cash flows, inflation, real estate
A residential investment property has an expected nominal total return of 6% pa and nominal capital return of 2.5% pa. Inflation is expected to be 2.5% pa.
All of the above are effective nominal rates and investors believe that they will stay the same in perpetuity.
What are the property's expected real total, capital and income returns?
The answer choices below are given in the same order.
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Note that a fair gamble is a bet that has an expected value of zero, such as paying $0.50 to win $1 in a coin flip with heads or nothing if it lands tails. Fairly priced insurance is when the expected present value of the insurance premiums is equal to the expected loss from the disaster that the insurance protects against, such as the cost of rebuilding a home after a catastrophic fire.
Which of the following statements is NOT correct?
Below is a graph of 3 peoples’ utility functions, Mr Blue (U=W^(1/2) ), Miss Red (U=W/10) and Mrs Green (U=W^2/1000). Assume that each of them currently have $50 of wealth.
Which of the following statements about them is NOT correct?
(a) Mr Blue would prefer to invest his wealth in a well diversified portfolio of stocks rather than a single stock, assuming that all stocks had the same total risk and return.
A firm conducts a two-for-one stock split. Which of the following consequences would NOT be expected?
Which derivatives position has the possibility of unlimited potential gains?
The below graph from the RBA shows the phase-in of the Basel 3 minimum regulatory capital requirements under the Basel Committee on Banking Supervision (BCBS) on the left panel and in Australia under the Australian Prudential Regulatory Authority (APRA) on the right panel.
Which of the following statements about the Basel 3 minimum regulatory capital requirements as at 2019 is NOT correct? All minimum amounts exclude the 2.5% counter-cyclical buffer.
The Basel 3 minimum regulatory capital requirement as a percent of Risk Weighted Assets (RWA) is: