Katya offers to pay you $10 at the end of every year for the next 5 years (t=1,2,3,4,5) if you pay her $50 now (t=0). You can borrow and lend from the bank at an interest rate of 10% pa, given as an effective annual rate. Ignore credit risk.
You operate a cattle farm that supplies hamburger meat to the big fast food chains. You buy a lot of grain to feed your cattle, and you sell the fully grown cattle on the livestock market.
You're afraid of adverse movements in grain and livestock prices. What options should you buy to hedge your exposures in the grain and cattle livestock markets?
Select the most correct response:
The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.
### p_0 = \frac{d_1}{r - g} ###
Which expression is NOT equal to the expected dividend yield?
Question 383 Merton model of corporate debt, real option, option
In the Merton model of corporate debt, buying a levered company's debt is equivalent to buying the company's assets and:
Below is a graph of the USD against the JPY and EUR from 1980 to 2015, compiled by the RBA. Select the correct statement about what occurred between 1980 and 2015. Note that in 1980 the euro was around 1.3 USD per EUR and the Yen was around 250 JPY per USD.
Question 708 continuously compounding rate, continuously compounding rate conversion
Convert a 10% continuously compounded annual rate ##(r_\text{cc annual})## into an effective annual rate ##(r_\text{eff annual})##. The equivalent effective annual rate is:
A 4.5% fixed coupon Australian Government bond was issued at par in mid-April 2009. Coupons are paid semi-annually in arrears in mid-April and mid-October each year. The face value is $1,000. The bond will mature in mid-April 2020, so the bond had an original tenor of 11 years.
Today is mid-September 2015 and similar bonds now yield 1.9% pa.
What is the bond's new price? Note: there are 10 semi-annual coupon payments remaining from now (mid-September 2015) until maturity (mid-April 2020); both yields are given as APR's compounding semi-annually; assume that the yield curve was flat before the change in yields, and remained flat afterwards as well.
The famous investor Warren Buffett is one of few portfolio managers who appears to have consistently beaten the market. His company Berkshire Hathaway (BRK) appears to have outperformed the US S&P500 market index, shown in the graph below.
Read the below statements about Warren Buffett and the implications for the Efficient Markets Hypothesis (EMH) theory of Eugene Fama. Assume that the first sentence is true. Analyse the second sentence and select the answer option which is NOT correct. In other words, find the false statement in the second sentence.