A project has the following cash flows. Normally cash flows are assumed to happen at the given time. But here, assume that the cash flows are received smoothly over the year. So the $250 at time 2 is actually earned smoothly from t=1 to t=2:
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -400 |
| 1 | 200 |
| 2 | 250 |
What is the payback period of the project in years?
A four year bond has a face value of $100, a yield of 9% and a fixed coupon rate of 6%, paid semi-annually. What is its price?
Which of the following statements about the weighted average cost of capital (WACC) is NOT correct?
Estimate the Chinese bank ICBC's share price using a backward-looking price earnings (PE) multiples approach with the following assumptions and figures only. Note that the renminbi (RMB) is the Chinese currency, also known as the yuan (CNY).
- The 4 major Chinese banks ICBC, China Construction Bank (CCB), Bank of China (BOC) and Agricultural Bank of China (ABC) are comparable companies;
- ICBC 's historical earnings per share (EPS) is RMB 0.74;
- CCB's backward-looking PE ratio is 4.59;
- BOC 's backward-looking PE ratio is 4.78;
- ABC's backward-looking PE ratio is also 4.78;
Note: Figures sourced from Google Finance on 25 March 2014. Share prices are from the Shanghai stock exchange.
A European call 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 call option?
On 22-Mar-2013 the Australian Government issued series TB139 treasury bonds with a combined face value $23.4m, listed on the ASX with ticker code GSBG25.
The bonds mature on 21-Apr-2025, the fixed coupon rate is 3.25% pa and coupons are paid semi-annually on the 21st of April and October of each year. Each bond's face value is $1,000.
At market close on Friday 11-Sep-2015 the bonds' yield was 2.736% pa.
At market close on Monday 14-Sep-2015 the bonds' yield was 2.701% pa. Both yields are given as annualised percentage rates (APR's) compounding every 6 months. For convenience, assume 183 days in 6 months and 366 days in a year.
What was the historical total return over those 3 calendar days between Friday 11-Sep-2015 and Monday 14-Sep-2015?
There are 183 calendar days from market close on the last coupon 21-Apr-2015 to the market close of the next coupon date on 21-Oct-2015.
Between the market close times from 21-Apr-2015 to 11-Sep-2015 there are 143 calendar days. From 21-Apr-2015 to 14-Sep-2015 there are 146 calendar days.
From 14-Sep-2015 there were 20 coupons remaining to be paid including the next one on 21-Oct-2015.
All of the below answers are given as effective 3 day rates.
Question 707 continuously compounding rate, continuously compounding rate conversion
Convert a 10% effective annual rate ##(r_\text{eff annual})## into a continuously compounded annual rate ##(r_\text{cc annual})##. The equivalent continuously compounded annual rate is:
A 12 month European-style call option with a strike price of $11 is written on a dividend paying stock currently trading at $10. The dividend is paid annually and the next dividend is expected to be $0.40, paid in 9 months. The risk-free interest rate is 5% pa continuously compounded and the standard deviation of the stock’s continuously compounded returns is 30 percentage points pa. The stock's continuously compounded returns are normally distributed. Using the Black-Scholes-Merton option valuation model, determine which of the following statements is NOT correct.
A stock's returns are normally distributed with a mean of 10% pa and a standard deviation of 20 percentage points pa. What is the 95% confidence interval of returns over the next year? Note that the Z-statistic corresponding to a one-tail:
- 90% normal probability density function is 1.282.
- 95% normal probability density function is 1.645.
- 97.5% normal probability density function is 1.960.
The 95% confidence interval of annual returns is between: