A project's NPV is positive. Select the most correct statement:
A European company just issued two bonds, a
- 3 year zero coupon bond at a yield of 6% pa, and a
- 4 year zero coupon bond at a yield of 6.5% pa.
What is the company's forward rate over the fourth year (from t=3 to t=4)? Give your answer as an effective annual rate, which is how the above bond yields are quoted.
Question 278 inflation, real and nominal returns and cash flows
Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year.
Question 382 Merton model of corporate debt, real option, option
In the Merton model of corporate debt, buying a levered company's shares is equivalent to:
One and a half years ago Frank bought a house for $600,000. Now it's worth only $500,000, based on recent similar sales in the area.
The expected total return on Frank's residential property is 7% pa.
He rents his house out for $1,600 per month, paid in advance. Every 12 months he plans to increase the rental payments.
The present value of 12 months of rental payments is $18,617.27.
The future value of 12 months of rental payments one year in the future is $19,920.48.
What is the expected annual rental yield of the property? Ignore the costs of renting such as maintenance, real estate agent fees and so on.
A semi-annual coupon bond has a yield of 3% pa. Which of the following statements about the yield is NOT correct? All rates are given to four decimal places.
The 'time value of money' is most closely related to which of the following concepts?
Question 851 labour force, no explanation
Below is a table showing some figures about the Australian labour force.
| Australian Labour Force and Employment Data | |
| April 2017 Seasonally Adjusted figures | |
| Employed persons ('000) | 12 061.9 |
| Unemployed persons ('000) | 751.4 |
| Unemployment rate (%) | 5.9 |
| Participation rate (%) | 64.8 |
Source: ABS 6202.0 Labour Force, Australia, Apr 2017
What do you estimate is the size of working age population in thousands (‘000)?
Question 861 open interest, closing out future contract, no explanation
Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.
1. Alice buys 2 future from Bob.
2. Chris buys 5 futures from Delta.
3. Chris buys 9 futures from Bob.
These were the only trades made in this equity index future.
Which of the following statements is NOT correct?
Question 948 VaR, expected shortfall
Below is a historical sample of returns on the S&P500 capital index.
| S&P500 Capital Index Daily Returns Ranked from Best to Worst |
||
| 10,000 trading days from 4th August 1977 to 24 March 2017 based on closing prices. |
||
| Rank | Date (DD-MM-YY) |
Continuously compounded daily return (% per day) |
| 1 | 21-10-87 | 9.23 |
| 2 | 08-03-83 | 8.97 |
| 3 | 13-11-08 | 8.3 |
| 4 | 30-09-08 | 8.09 |
| 5 | 28-10-08 | 8.01 |
| 6 | 29-10-87 | 7.28 |
| … | … | … |
| 9980 | 11-12-08 | -5.51 |
| 9981 | 22-10-08 | -5.51 |
| 9982 | 08-08-11 | -5.54 |
| 9983 | 22-09-08 | -5.64 |
| 9984 | 11-09-86 | -5.69 |
| 9985 | 30-11-87 | -5.88 |
| 9986 | 14-04-00 | -5.99 |
| 9987 | 07-10-98 | -6.06 |
| 9988 | 08-01-88 | -6.51 |
| 9989 | 27-10-97 | -6.55 |
| 9990 | 13-10-89 | -6.62 |
| 9991 | 15-10-08 | -6.71 |
| 9992 | 29-09-08 | -6.85 |
| 9993 | 07-10-08 | -6.91 |
| 9994 | 14-11-08 | -7.64 |
| 9995 | 01-12-08 | -7.79 |
| 9996 | 29-10-08 | -8.05 |
| 9997 | 26-10-87 | -8.4 |
| 9998 | 31-08-98 | -8.45 |
| 9999 | 09-10-08 | -12.9 |
| 10000 | 19-10-87 | -23.36 |
| Mean of all 10,000: | 0.0354 | |
| Sample standard deviation of all 10,000: | 1.2062 | |
| Sources: Bloomberg and S&P. | ||
Assume that the one-tail Z-statistic corresponding to a probability of 99.9% is exactly 3.09. Which of the following statements is NOT correct? Based on the historical data, the 99.9% daily: