Fight Finance

Courses  Tags  Random  All  Recent  Scores

Question 181  DDM

A stock pays annual dividends. It just paid a dividend of $5. The growth rate in the dividend is 1% pa. You estimate that the stock's required return is 8% 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?



Question 499  NPV, Annuity

Some countries' interest rates are so low that they're zero.

If interest rates are 0% pa and are expected to stay at that level for the foreseeable future, what is the most that you would be prepared to pay a bank now if it offered to pay you $10 at the end of every year for the next 5 years?

In other words, what is the present value of five $10 payments at time 1, 2, 3, 4 and 5 if interest rates are 0% pa?



Question 508  income and capital returns

Which of the following equations is NOT equal to the total return of an asset?

Let ##p_0## be the current price, ##p_1## the expected price in one year and ##c_1## the expected income in one year.



Question 581  APR, effective rate, effective rate conversion

A home loan company advertises an interest rate of 6% pa, payable monthly. Which of the following statements about the interest rate is NOT correct? All rates are given to four decimal places.



Question 586  option

Which one of the following statements about option contracts is NOT correct?



Question 601  foreign exchange rate, American and European terms

Australians usually quote the Australian dollar in USD per 1 AUD. For example, in October 2015 the Australian dollar was quoted as 0.72 USD per AUD. Is this an or terms quote?


Question 720  mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate

A stock has an arithmetic average continuously compounded return (AALGDR) of 10% pa, a standard deviation of continuously compounded returns (SDLGDR) of 80% pa and current stock price of $1. Assume that stock prices are log-normally distributed.

In 5 years, what do you expect the median and mean prices to be? The answer options are given in the same order.



Question 754  fully amortising loan, interest only loan

How much more can you borrow using an interest-only loan compared to a 25-year fully amortising loan if interest rates are 4% pa compounding per month and are not expected to change? If it makes it easier, assume that you can afford to pay $2,000 per month on either loan. Express your answer as a proportional increase using the following formula:

###\text{Proportional Increase} = \dfrac{V_\text{0,interest only}}{V_\text{0,fully amortising}} - 1###



Question 849  credit card, APR, no explanation

You just spent $1,000 on your credit card. The interest rate is 24% pa compounding monthly. Assume that your credit card account has no fees and no minimum monthly repayment.

If you can't make any interest or principal payments on your credit card debt over the next year, how much will you owe one year from now?



Question 866  option, Black-Scholes-Merton option pricing

A one year European-style put option has a strike price of $4.

The option's underlying stock currently trades at $5, pays no dividends and its standard deviation of continuously compounded returns is 47% pa.

The risk-free interest rate is 10% pa continuously compounded.

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