# Fight Finance

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A 30-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 8% pa and there are 365 days in the year. What is its price now? The 'futures price' in a futures contract is paid at the start when the futures contract is agreed to. or ? When someone says that they're "buying American dollars" (USD), what type of asset are they probably buying? They're probably buying: If the USD appreciates against the AUD, the American terms quote of the AUD will or ? Find Sidebar Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.  Sidebar Corp Income Statement for year ending 30th June 2013$m Sales 405 COGS 100 Depreciation 34 Rent expense 22 Interest expense 39 Taxable Income 210 Taxes at 30% 63 Net income 147
 Sidebar Corp Balance Sheet as at 30th June 2013 2012 $m$m Inventory 70 50 Trade debtors 11 16 Rent paid in advance 4 3 PPE 700 680 Total assets 785 749 Trade creditors 11 19 Bond liabilities 400 390 Contributed equity 220 220 Retained profits 154 120 Total L and OE 785 749

Note: All figures are given in millions of dollars ($m). The cash flow from assets was:  Project Data Project life 1 year Initial investment in equipment$6m Depreciation of equipment per year $6m Expected sale price of equipment at end of project 0 Unit sales per year 9m Sale price per unit$8 Variable cost per unit $6 Fixed costs per year, paid at the end of each year$1m Interest expense in first year (at t=1) $0.53m Tax rate 30% Government treasury bond yield 5% Bank loan debt yield 6% Market portfolio return 10% Covariance of levered equity returns with market 0.08 Variance of market portfolio returns 0.16 Firm's and project's debt-to-assets ratio 50% Notes 1. Due to the project, current assets will increase by$5m now (t=0) and fall by $5m at the end (t=1). Current liabilities will not be affected. Assumptions • The debt-to-assets ratio will be kept constant throughout the life of the project. The amount of interest expense at the end of each period has been correctly calculated to maintain this constant debt-to-equity ratio. • Millions are represented by 'm'. • All cash flows occur at the start or end of the year as appropriate, not in the middle or throughout the year. • All rates and cash flows are real. The inflation rate is 2% pa. • All rates are given as effective annual rates. • The 50% capital gains tax discount is not available since the project is undertaken by a firm, not an individual. What is the net present value (NPV) of the project? Who is most in danger of being personally bankrupt? Assume that all of their businesses' assets are highly liquid and can therefore be sold immediately. 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? A non-dividend paying stock has a current price of$20.

The risk free rate is 5% pa given as a continuously compounded rate.

Options on the stock are currently priced at $5 for calls and$5.55 for puts where both options have a 2 year maturity and an exercise price of \$24.

You suspect that the call option contract is mis-priced and would like to conduct a risk-free arbitrage that requires zero capital. Which of the following steps about arbitraging the situation is NOT correct?

Which of the following statements is NOT correct? An inverted US government bond yield curve indicates that: