The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.

### p_0 = \frac{d_1}{r - g} ###

Which expression is **NOT** equal to the expected dividend yield?

Diversification in a portfolio of two assets works best when the correlation between their returns is:

Your friend just bought a house for $**1,000,000**. He financed it using a $**900,000** mortgage loan and a deposit of $**100,000**.

In the context of residential housing and mortgages, the 'equity' or 'net wealth' tied up in a house is the value of the house less the value of the mortgage loan. Assuming that your friend's only asset is his house, his net wealth is $100,000.

If house prices suddenly fall by **15%**, what would be your friend's percentage change in net wealth?

Assume that:

- No income (rent) was received from the house during the short time over which house prices fell.
- Your friend will not declare bankruptcy, he will always pay off his debts.

Bonds X and Y are issued by the same US company. Both bonds yield **6**% pa, and they have the same face value ($100), maturity, seniority, and payment frequency.

The only difference is that bond X pays coupons of **8**% pa and bond Y pays coupons of **12**% pa. Which of the following statements is true?

Which of the following statements is **NOT** equivalent to the **yield** on debt?

Assume that the debt being referred to is fairly priced, but do not assume that it's priced at par.

An American wishes to convert **USD 1 million** to Australian dollars (AUD). The exchange rate is **0.8 USD per AUD**. How much is the USD 1 million worth in AUD?

**Question 598** future, tailing the hedge, cross hedging

The standard deviation of monthly changes in the spot price of lamb is $**0.015** per pound. The standard deviation of monthly changes in the futures price of live cattle is $**0.012** per pound. The correlation between the spot price of lamb and the futures price of cattle is **0.4**.

It is now January. A lamb producer is committed to selling **1,000,000** pounds of lamb in May. The spot price of live cattle is $**0.30** per pound and the June futures price is $**0.32** per pound. The spot price of lamb is $**0.60** per pound.

The producer wants to use the June live cattle futures contracts to hedge his risk. Each futures contract is for the delivery of **50,000** pounds of cattle.

How many live cattle futures should the lamb farmer sell to hedge his risk? Round your answer to the nearest whole number of contracts.

**Question 856** credit terms, no explanation

Your supplier’s credit terms are "**1/10 net 30**". Which of the following statements about these credit terms is **NOT** correct?

If you intend to buy an item from your supplier for a tag price of $100 and you:

The market's expected total return is 10% pa and the risk free rate is 5% pa, both given as effective annual rates.

A stock has a beta of 0.7.

In the last 5 minutes, bad economic news was released showing a higher chance of recession. Over this time the share market **fell** by **2**%. The risk free rate was unchanged. What do you think was the stock's historical return over the last **5 minutes**, given as an effective 5 minute rate?