A three year corporate bond yields 12% pa with a coupon rate of 10% pa, paid semi-annually.

Find the effective six month yield, effective annual yield and the effective daily yield. Assume that each month has 30 days and that there are 360 days in a year.

All answers are given in the same order:

##r_\text{eff semi-annual}##, ##r_\text{eff yearly}##, ##r_\text{eff daily}##.

A stock pays annual dividends. It just paid a dividend of $5. The growth rate in the dividend is 1% pa. You estimate that the stock's required return is 8% pa. Both the discount rate and growth rate are given as effective annual rates.

Using the dividend discount model, what will be the share price?

Many Australian home loans that are interest-only actually require payments to be made on a fully amortising basis after a number of years.

You decide to borrow $**600,000** from the bank at an interest rate of **4.25**% pa for 25 years. The payments will be **interest-only** for the first **10** years (t=0 to 10 years), then they will have to be paid on a **fully amortising** basis for the last **15** years (t=10 to 25 years).

Assuming that interest rates will remain constant, what will be your monthly payments over the first 10 years from now, and then the next 15 years after that? The answer options are given in the same order.

The efficient markets hypothesis (EMH) and no-arbitrage pricing theory are most closely related to which of the following concepts?

Mr Blue, Miss Red and Mrs Green are people with different utility functions. Which of the statements about the 3 utility functions is **NOT** correct?

**Question 727** inflation, real and nominal returns and cash flows

The Australian Federal Government lends money to domestic students to pay for their university education. This is known as the Higher Education Contribution Scheme (HECS). The nominal interest rate on the HECS loan is set equal to the consumer price index (CPI) inflation rate. The interest is capitalised every year, which means that the interest is added to the principal. The interest and principal does not need to be repaid by students until they finish study and begin working.

Which of the following statements about HECS loans is **NOT** correct?

**Question 732** real and nominal returns and cash flows, inflation, income and capital returns

An investor bought a bond for $**100** (at t=0) and one year later it paid its annual coupon of $**1** (at t=1). Just after the coupon was paid, the bond price was $**100.50** (at t=1). Inflation over the past year (from t=0 to t=1) was **3**% pa, given as an effective annual rate.

Which of the following statements is **NOT** correct? The bond investment produced a:

**Question 785** fixed for floating interest rate swap, non-intermediated swap

The below table summarises the borrowing costs confronting two companies A and B.

Bond Market Yields |
||||

Fixed Yield to Maturity (%pa) | Floating Yield (%pa) | |||

Firm A | 3 | L - 0.4 | ||

Firm B | 5 | L + 1 | ||

Firm A wishes to borrow at a floating rate and Firm B wishes to borrow at a fixed rate. Design a non-intermediated swap that benefits firm A only. What will be the swap rate?

**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}###