Fight Finance

(a) 0.2500

(b) 0.2000

(c) 0.1180

(d) 0.1000

(e) 0.1056

(a) An increase in net capital spending.

(b) A decrease in the cash flow to creditors.

(c) An increase in interest expense.

(d) An increase in net working capital.

(e) A decrease in dividends paid.

(a) The zero-coupon bond and the 7% semi-annual coupon bond were both discount bonds but now they are both premium bonds.

(b) The zero-coupon bond and the 7% semi-annual coupon bond were both premium bonds but now they are both discount bonds.

(c) When yields fell, the investor made a capital loss on both bonds.

(d) When yields fell, the investor made a capital gain on both bonds.

(e) When yields fell, the investor made a capital gain on the zero coupon bond but a loss on the 7% semi-annual coupon bond.

The 'option strike price' in an option contract, also known as the exercise price, is paid at the start when the option contract is agreed to. or ?

(a) ##r_V = \dfrac{D}{V}.r_D + \dfrac{E}{V}.r_E##

(b) ##\beta_V = \dfrac{D}{V}.\beta_D + \dfrac{E}{V}.\beta_E##

(c) ##\sigma_\text{V syst}^2 = \left(\dfrac{D}{V}\right)^2.\sigma_\text{D syst}^2 + \left(\dfrac{E}{V}\right)^2.\sigma_\text{E syst}^2##

(d) ##\sigma_\text{V idio}^2 = \left(\dfrac{D}{V}\right)^2.\sigma_\text{D idio}^2 + \left(\dfrac{E}{V}\right)^2.\sigma_\text{E idio}^2 + 2.\dfrac{D}{V}.\dfrac{E}{V}.\rho_\text{D idio, E idio}.\sigma_\text{D idio}.\sigma_\text{E idio}##

(e) ##\sigma_\text{V total}^2 = \left(\dfrac{D}{V}\right)^2.\sigma_\text{D total}^2 + \left(\dfrac{E}{V}\right)^2.\sigma_\text{E total}^2##

(a) ##F_2=11.5027, V_0=0, V_{0.5}=1.5715##

(b) ##F_2=11.5027, V_0=0, V_{0.5}=1.8258##

(c) ##F_2=12.9693, V_0=0, V_{0.5}=1.3218##

(d) ##F_2=12.9693, V_0=0, V_{0.5}=1.3896##

(e) ##F_2=12.9693, V_0=0, V_{0.5}=1.6144##

(a) Obligation to buy the underlying oil at $38.94 per barrel.

(b) Obligation to sell the underlying oil at $38.94 per barrel.

(c) Right to buy the underlying oil at $38.94 per barrel if she wants.

(d) Right to sell the underlying oil at $38.94 per barrel if she wants.

(e) Obligation to buy the underlying oil $38.94 per barrel if the counter party chooses to sell it.

(a) Buyers of call options are required to pay an initial margin at the start.

(b) Call options are a zero-sum game in the sense that the winner gains at the expense of the loser.

(c) Buyers of call options have to pay the option price at the start.

(d) Buyers of call options do not care about the credit risk of the original call option seller since the contract is novated by the exchange.

(e) Speculators who sell call options hope that the underlying asset price falls.

(a) The firm currently has 3m shares on issue and will need to sell 2m new shares in the rights issue.

(b) The company should do a 2-for-3 rights issue.

(c) After the rights issue the market share price will be $17.

(d) The value of one right would be $3.

(e) If you don't take part in the rights issue and it is non-renounceable, you will lose $2 per share.

(a) The market portfolio M has systematic risk only. It’s a fully diversified portfolio comprised of all individual risky assets. The market portfolio is usually assumed to be the equity index, such as the ASX200 in Australia or the S&P500 in the US.

(b) The risk free security has no risk at all. Government bonds are usually assumed to be the risk-free security.

(c) Portfolio combinations of the market portfolio and risk free security will plot on the CML and will have systematic risk only. They will have no diversifiable risk.

(d) The portfolios on the CML with a return above ##r_f## have maximum return for any given level of risk.

(e) The individual assets and portfolios with returns less than the risk free rate are over-priced, have a negative Jensen’s alpha and should be sold.