Fight Finance

(a) 0.06, 0.1236, 0.000324.

(b) 0.058301, 0.12, 0.000315.

(c) 0.05, 0.1025, 0.000271.

(d) 0.05, 0.1, 0.000278.

(e) 0.048809, 0.1, 0.000265.

(a) $114.7202

(b) $114.8775

(c) $122.9398

(d) $126.628

(e) $174.3874

(a) Common equity in small private companies.

(b) Common equity in large private companies.

(c) Common equity in listed public companies.

(d) Fixed term bonds of listed public companies.

(e) Real estate.

(a) ##\min(S_T - K, 0)##.

(b) ##-\min(S_T - K, 0)##.

(c) ##\max(K-S_T, 0)##.

(d) ##-\max(K-S_T, 0)##.

(e)##-\max(S_T-K, 0)##.

(a) The NPV is zero.

(b) The IRR is 10% pa, equal to the 10% cost of capital.

(c) The payback period is two years assuming that the whole $12.1m cash flow occurs at t=2, or 1.826 years if the $12.1m cash flow is paid smoothly over the second year.

(d) The project could be accepted or rejected, the owners would be indifferent.

(e) If the project is accepted then the market value of the firm's assets will increase by $2.1m more than it would otherwise if the project was rejected.

(a) Alice has $6,000 cash, owes $10,000 credit card debt due immediately and 100% owns a sole tradership business with assets worth $10,000 and liabilities of $3,000.

(b) Billy has $10,000 cash, owes $6,000 credit card debt due immediately and 100% owns a corporate business with assets worth $3,000 and liabilities of $10,000.

(c) Carla has $6,000 cash, owes $10,000 credit card debt due immediately and 100% owns a corporate business with assets worth $10,000 and liabilities of $3,000.

(d) Darren has $10,000 cash, owes $6,000 credit card debt due immediately and 100% owns a sole tradership business with assets worth $3,000 and liabilities of $10,000.

(e) Ernie has $1,000 cash, lent $3,000 to his friend, and doesn't have any personal debt or own any businesses.

(a) -33.33%, 50%

(b) -25%, 33.33%

(c) -25%, 25%

(d) -20%, 25%

(e) 33.33%, -25%

(a) The APR compounding semi-annually is 3.0000% per annum.

(b) The effective 6 month rate is 1.5000% per six months.

(c) The effective annual rate is 3.0225% per annum.

(d) The effective monthly rate is 0.2500% per month.

(e) The APR compounding monthly is 2.9814% per annum.

(a) Futures quotes displayed on the exchange change continuously.

(b) Futures prices written in existing futures contracts are fixed, they do not change since they’re written in the legal contract.

(c) One year futures quotes equal the market’s expectation of the underlying asset price in one year. For this reason futures markets are a good predictor of the underlying asset prices.

(d) Futures prices can be calculated based on the spot price of the underlying asset compounded forward at the total opportunity cost of capital, less any storage costs and plus any income yields such as dividends.

(e) The futures price quote and the underlying asset's spot price will converge over time. At the future's expiry they’ll be equal.

(a) A normally distributed variable’s mean, median and mode are all expected to be equal.

(b) A log-normally distributed variable’s mean, median and mode are all expected to be different. Mean > median > mode.

(c) Future stock prices ##(P_t )## are often assumed to be log-normally distributed.

(d) Stocks’ annual net discrete returns ##(P_t/P_0-1)## must be normally distributed when stock prices ##(P_t)## are log-normally distributed.

(e) The total area under a probability density function (pdf) is always one.