Fight Finance

(a) ## r-g ##

(b) ## \dfrac{d_1}{p_0} ##

(c) ## \dfrac{d_5}{p_4} ##

(d) ## \dfrac{d_5(1+g)^2}{p_6} ##

(e) ## \dfrac{d_3}{p_0(1+r)^2} ##

(a) 1.0862

(b) 1.2672

(c) 1.3143

(d) 1.5333

(e) 1.7783

(a) Markets are weak and semi-strong form efficient but strong-form inefficient.

(b) Markets are weak form efficient but semi-strong and strong-form inefficient.

(c) Chartists make negative excess returns.

(d) Insiders make positive excess returns.

(e) Insiders make negative excess returns.

(a) Illiquid small private companies.

(b) High growth technology firms.

(c) Firms expected to have temporarily low earnings over the next year, but with higher earnings later.

(d) Firms with a very low level of systematic risk.

(e) Firms whose assets include a very large proportion of cash.

(a) $100

(b) $115.16

(c) $136.63

(d) $161.05

(e) $185.47

(a) Bought the right to buy the underlying asset from her at maturity if he wants.

(b) Bought the right to sell the underlying asset to her at maturity if he wants.

(c) Sold the right that allows her to buy the underlying asset from him at maturity if she wants.

(d) Sold the right that allows her to sell the underlying asset to him at maturity if she wants.

(e) Sold a contract that obliges him to buy the underlying asset from her at maturity if she wants.

(a) Obligation to buy the underlying oil at $44 per barrel.

(b) Obligation to sell the underlying oil at $44 per barrel.

(c) Right to sell the underlying oil at $44 per barrel if she wants.

(d) Obligation to buy the underlying oil $44 per barrel if the counterparty chooses to sell it.

(e) Obligation to sell the underlying oil at $44 per barrel if the counterparty chooses to buy it.

(a) All people prefer more rather than less wealth which is rational.

(b) Mr Blue is risk averse, Miss Red is risk neutral and Mrs Green is risk loving.

(c) Mr Blue's certainty equivalent of the gamble is $225. This is less than his current $500 which is why he would dislike the gamble.

(d) Miss Red's certainty equivalent of the gamble is $500. This is the same as her current $500 which is why she would be indifferent to gambling.

(e) Mrs Green's certainty equivalent of the gamble is $793.70. This is more than her current $500 which is why she would like the gamble.

If a stock's future expected continuously compounded annual returns are normally distributed, what will be bigger, the stock's or continuously compounded annual return? Or would you expect them to be ?

(a) You have a debt asset.

(b) The bank sold you its promise to pay back interest and principal payments.

(c) The bank is exposed to your credit risk, it’s afraid that you’ll default on your debt.

(d) The interest income you’re paid is taxable income for you.

(e) The interest expense that the bank pays is tax-deductible for the bank.