A credit card offers an interest rate of 18% pa, compounding monthly.
Find the effective monthly rate, effective annual rate and the effective daily rate. Assume that there are 365 days in a year.
All answers are given in the same order:
### r_\text{eff monthly} , r_\text{eff yearly} , r_\text{eff daily} ###
Question 58 NPV, inflation, real and nominal returns and cash flows, Annuity
A project to build a toll bridge will take two years to complete, costing three payments of $100 million at the start of each year for the next three years, that is at t=0, 1 and 2.
After completion, the toll bridge will yield a constant $50 million at the end of each year for the next 10 years. So the first payment will be at t=3 and the last at t=12. After the last payment at t=12, the bridge will be given to the government.
The required return of the project is 21% pa given as an effective annual nominal rate.
All cash flows are real and the expected inflation rate is 10% pa given as an effective annual rate. Ignore taxes.
The Net Present Value is:
A stock is expected to pay the following dividends:
Cash Flows of a Stock | ||||||
Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
Dividend ($) | 0 | 6 | 12 | 18 | 20 | ... |
After year 4, the dividend will grow in perpetuity at 5% pa. The required return of the stock is 10% pa. Both the growth rate and required return are given as effective annual rates.
What is the current price of the stock?
Question 271 CAPM, option, risk, systematic risk, systematic and idiosyncratic risk
All things remaining equal, according to the capital asset pricing model, if the systematic variance of an asset increases, its required return will increase and its price will decrease.
If the idiosyncratic variance of an asset increases, its price will be unchanged.
What is the relationship between the price of a call or put option and the total, systematic and idiosyncratic variance of the underlying asset that the option is based on? Select the most correct answer.
Call and put option prices increase when the:
When someone says that they're "buying American dollars" (USD), what type of asset are they probably buying? They're probably buying:
A home loan company advertises an interest rate of 4.5% pa, payable monthly. Which of the following statements about the interest rate is NOT correct?
Question 791 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate, log-normal distribution, VaR, confidence interval
A risk manager has identified that their pension fund’s continuously compounded portfolio returns are normally distributed with a mean of 5% pa and a standard deviation of 20% pa. The fund’s portfolio is currently valued at $1 million. Assume that there is no estimation error in the above figures. To simplify your calculations, all answers below use 2.33 as an approximation for the normal inverse cumulative density function at 99%. All answers are rounded to the nearest dollar. Which of the following statements is NOT correct?
A graph of assets’ expected returns ##(\mu)## versus standard deviations ##(\sigma)## is given in the below diagram.
Each letter corresponds to a separate coloured area. The portfolios at the boundary of the areas, on the black lines, are excluded from each area. Assume that all assets represented in this graph are fairly priced, and that all risky assets can be short-sold.
Which of the following statements about this graph and Markowitz portfolio theory is NOT correct?
Which type of business organisation has the most checks and balances against the detrimental effects of the principal-agent problem since it's potentially the most exposed?
Question 988 variance, covariance, beta, CAPM, risk, no explanation
Price Data Time Series | |||||||||||
Sourced from Yahoo Finance Historical Price Data | |||||||||||
Date | S&P500 Index (^GSPC) | Apple (AAPL) | |||||||||
Open | High | Low | Close | Adj close | Open | High | Low | Close | Adj close | ||
2007, Wed 3 Jan | 1418 | 1429 | 1408 | 1417 | 1417 | 12.33 | 12.37 | 11.7 | 11.97 | 10.42 | |
2008, Wed 2 Jan | 1468 | 1472 | 1442 | 1447 | 1447 | 28.47 | 28.61 | 27.51 | 27.83 | 24.22 | |
2009, Fri 2 Jan | 903 | 935 | 899 | 932 | 932 | 12.27 | 13.01 | 12.17 | 12.96 | 11.28 | |
2010, Mon 4 Jan | 1117 | 1134 | 1117 | 1133 | 1133 | 30.49 | 30.64 | 30.34 | 30.57 | 26.6 | |
Source: Yahoo Finance. | |||||||||||
Which of the following statements about the above table which is used to calculate Apple's equity beta is NOT correct?