A stock pays annual dividends. It just paid a dividend of $3. The growth rate in the dividend is 4% pa. You estimate that the stock's required return is 10% pa. Both the discount rate and growth rate are given as effective annual rates. Using the dividend discount model, what will be the share price?
A European put option will mature in ##T## years with a strike price of ##K## dollars. The underlying asset has a price of ##S## dollars.
What is an expression for the payoff at maturity ##(f_T)## in dollars from having written (being short) the put option?
The accounting identity states that the book value of a company's assets (A) equals its liabilities (L) plus owners equity (OE), so A = L + OE.
The finance version states that the market value of a company's assets (V) equals the market value of its debt (D) plus equity (E), so V = D + E.
Therefore a business's assets can be seen as a portfolio of the debt and equity that fund the assets.
Let ##\sigma_\text{V total}^2## be the total variance of returns on assets, ##\sigma_\text{V syst}^2## be the systematic variance of returns on assets, and ##\sigma_\text{V idio}^2## be the idiosyncratic variance of returns on assets, and ##\rho_\text{D idio, E idio}## be the correlation between the idiosyncratic returns on debt and equity.
Which of the following equations is NOT correct?
The saying "buy low, sell high" suggests that investors should make a:
The following cash flows are expected:
- A perpetuity of yearly payments of $30, with the first payment in 5 years (first payment at t=5, which continues every year after that forever).
- One payment of $100 in 6 years and 3 months (t=6.25).
What is the NPV of the cash flows if the discount rate is 10% given as an effective annual rate?
Question 829 option, future, delta, gamma, theta, no explanation
Below are some statements about futures and European-style options on non-dividend paying stocks. Assume that the risk free rate is always positive. Which of these statements is NOT correct? All other things remaining equal:
Below is the Australian federal government’s budget balance as a percent of GDP. Note that the columns to the right of the vertical black line were a forecast at the time. The x-axis shows financial years, so for example the 06/07 financial year represents the time period from 1 July 2006 to 30 June 2007.
Comparing the 2008/09 financial year to the previous one, the Australian federal government implemented:
To receive the dividend you must own the stock when the market closes on which date?
Question 981 margin loan, Basel accord, credit conversion factor
Margin loans secured by listed stock have a Basel III risk weight of 20%.
For margin loans that cannot be immediately cancelled by banks and asked to be repaid, the credit conversion factor (CCF) is 20%.
Suppose you have a stock portfolio worth $500,000, financed by:
- $300,000 of your own money; and
- $200,000 of the bank’s funds in the form of a margin loan which can only be cancelled by the bank after 5 days notice. The margin loan’s maximum LVR is 70%.
How much regulatory capital must the bank hold due to your margin loan? Assume that the bank wishes to pay dividends to its shareholders, so include the 2.5% capital conservation buffer in your calculations.