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For a price of $95, Nicole will sell you a 10 year bond paying semi-annual coupons of 8% pa. The face value of the bond is $100. Other bonds with the same risk, maturity and coupon characteristics trade at a yield of 8% pa.

Question 41 DDM, income and capital returns

The following is the Dividend Discount Model (DDM) used to price stocks:

### P_0 = \frac{d_1}{r-g} ###

Assume that the assumptions of the DDM hold and that the time period is measured in years.

Which of the following is equal to the expected dividend in 3 years, ## d_3 ##?

Question 272 NPV

Suppose you had $100 in a savings account and the interest rate was 2% per year.

After 5 years, how much do you think you would have in the account if you left the money to grow?

Question 293 covariance, correlation, portfolio risk

All things remaining equal, the higher the correlation of returns between two stocks:

Question 373 debt terminology

Which of the following statements is NOT correct? Lenders:

Question 565 correlation

What is the correlation of a variable X with a constant C?

The corr(X, C) or ##\rho_{X,C}## equals:

Question 652 future, continuously compounding rate

An equity index is currently at 5,200 points. The 6 month futures price is 5,300 points and the total required return is 6% pa with continuous compounding. Each index point is worth $25.

What is the implied dividend yield as a continuously compounded rate per annum?

Question 683 open interest, trade volume, future

Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.

1. Alice buys a future from Bob.

2. Chris buys a future from Delta.

3. Alice buys a future from Chris.

These were the only trades made in this equity index future. What was the trading volume and what is the open interest?

Question 723 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate

Here is a table of stock prices and returns. Which of the statements below the table is NOT correct?

Price and Return Population Statistics
Time	Prices	LGDR	GDR	NDR
0	100
1	99	-0.010050	0.990000	-0.010000
2	180.40	0.600057	1.822222	0.822222
3	112.73	0.470181	0.624889	0.375111

Arithmetic average		0.0399	1.1457	0.1457
Arithmetic standard deviation		0.4384	0.5011	0.5011

(a) The geometric average of the gross discrete returns (GAGDR) equals 1.04075 which is 104.075%.

(b) ##\exp \left( \text{GAGDR} \right) = \text{AALGDR}##. The natural exponent of the GAGDR equals the arithmetic average of the logarithms of the gross discrete returns (AALGDR).

(c) ##\text{GAGDR}^T = \left( P_T/P_0 \right)##. The GAGDR raised to the power of the number of time period that it's measured over equals the ratio of the first and last prices.

(d) ##\text{GAGDR} = \exp \left( \text{AALGDR} \right)##. This is always true, regardless of the distribution of the prices or returns. The logarithm of the geometric average of the gross discrete returns (LGAGDR) is always equal to the arithmetic average of the logarithm of the gross discrete returns (AALGDR).

(e) ##\text{AAGDR} \approx \exp \left( \text{AALGDR} + \text{SDLGDR}^2/2 \right)##. This is only approximately true and depends on the distribution of the prices and returns. It's asymptotically true as the time period that the returns are measured over reaches infinity.

Question 840 gross domestic product

Calculate Australia’s GDP over the 2016 calendar year using the below table:

Australian Gross Domestic Product Components
A$ billion, 2016 Calendar Year from 1 Jan 2016 to 31 Dec 2016 inclusive
Consumption	Investment	Government spending	Exports	Imports
971	421	320	328	344

Source: ABS 5206.0 Australian National Accounts: National Income, Expenditure and Product. Table 3. Expenditure on Gross Domestic Product (GDP), Current prices.

Over the 2016 calendar year, Australia’s GDP was: