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

### p_{0} = \frac{c_1}{r_{\text{eff}} - g_{\text{eff}}} ###

What is the discount rate '## r_\text{eff} ##' in this equation?

A 60-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 8% pa and there are 365 days in the year. What is its price now?

The below screenshot of Commonwealth Bank of Australia's (CBA) details were taken from the Google Finance website on 7 Nov 2014. Some information has been deliberately blanked out.

What was CBA's backwards-looking price-earnings ratio?

**Question 574** inflation, real and nominal returns and cash flows, NPV

What is the present value of a **nominal** payment of $100 in 5 years? The **real** discount rate is 10% pa and the inflation rate is 3% pa.

An equity index is currently at **5,000** points. The **2** year futures price is **5,400** points and the total required return is **8**% pa with continuous compounding. Each index point is worth $**25**.

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

A stock, a call, a put and a bond are available to trade. The call and put options' underlying asset is the stock they and have the same strike prices, ##K_T##.

You are currently **long** the **stock**. You want to **hedge** your long stock position without actually trading the stock. How would you do this?

**Question 903** option, Black-Scholes-Merton option pricing, option on stock index

A **six** month European-style **call** option on the S&P500 stock index has a strike price of **2800** points.

The underlying S&P500 stock index currently trades at **2700** points, has a continuously compounded dividend yield of **2**% pa and a standard deviation of continuously compounded returns of **25**% pa.

The risk-free interest rate is **5**% pa continuously compounded.

Use the Black-Scholes-Merton formula to calculate the option price. The call option price now is:

**Question 954** option, at the money option

Error, deal 990 does not exist.