You want to buy an apartment priced at $300,000. You have saved a deposit of $30,000. The bank has agreed to lend you the $270,000 as a **fully amortising** loan with a term of 25 years. The interest rate is 12% pa and is not expected to change.

What will be your monthly payments? Remember that mortgage loan payments are paid in arrears (at the end of the month).

A two year Government bond has a face value of $100, a yield of 0.5% and a fixed coupon rate of 0.5%, paid semi-annually. What is its price?

A firm changes its capital structure by issuing a large amount of debt and using the funds to repurchase shares. Its assets are unchanged. Ignore interest tax shields.

According to the Capital Asset Pricing Model (CAPM), which statement is correct?

Bonds X and Y are issued by different companies, but they both pay a semi-annual coupon of **10**% pa and they have the same face value ($100) and maturity (3 years).

The only difference is that bond X and Y's **yields** are **8** and **12**% pa respectively. Which of the following statements is true?

A project has the following cash flows:

Project Cash Flows | |

Time (yrs) | Cash flow ($) |

0 | -400 |

1 | 0 |

2 | 500 |

The required return on the project is 10%, given as an effective annual rate.

What is the Internal Rate of Return (IRR) of this project? The following choices are effective annual rates. Assume that the cash flows shown in the table are paid all at once at the given point in time.

A stock is expected to pay its semi-annual dividend of $1 per share for the foreseeable future. The current stock price is $**40** and the continuously compounded risk free rate is **3**% pa for all maturities. An investor has just taken a **long** position in a **12**-month futures contract on the stock. The last dividend payment was exactly 4 months ago. Therefore the next $**1** dividend is in **2** months, and the $**1** dividend after is **8** months from now. Which of the following statements about this scenario is **NOT** correct?

**Question 924** foreign exchange rate, forward foreign exchange rate, arbitrage, forward interest rate, no explanation

The yield curve in the United States of America and Australia is flat. Currently, the:

- USD federal funds rate is 1% pa;
- AUD cash rate is 1.5% pa;
- Spot AUD exchange rate is 1 USD per AUD;
- One year forward AUD exchange rate is 0.97 USD per AUD.

You suspect that there’s an arbitrage opportunity.

Which one of the following statements about the potential arbitrage opportunity is **NOT** correct?

A common phrase heard in financial markets is that ‘high risk investments deserve high returns’. To make this statement consistent with the Capital Asset Pricing Model (CAPM), a high amount of what specific type of risk deserves a high return?

Investors deserve high returns when they buy assets with high: