Fight Finance

Will you or politely Katya's deal?

(a) ## r-g ##

(b) ## \dfrac{d_1}{p_0} ##

(c) ## \dfrac{d_5}{p_4} ##

(d) ## \dfrac{d_5(1+g)^2}{p_6} ##

(e) ## \dfrac{d_3}{p_0(1+r)^2} ##

(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 rental yield will fall and approach zero.

(b) The total return will fall and approach the capital return (5% pa).

(c) One or all of the following must fall: the systematic risk of real estate, the risk free rate or the market risk premium.

(d) If the country's nominal wealth growth rate is 4% pa and the nominal real estate growth rate is 5% pa then real estate will approach 100% of the country's wealth over time.

(e) If the country's nominal gross domestic production (GDP) growth rate is 4% pa and the nominal real estate rent growth rate is 2% pa then real estate rent will approach 100% of the country's GDP over time.

(a) A sunk cost.

(b) An opportunity cost.

(c) A negative side effect.

(d) A capital expense.

(e) A depreciation expense.

If the Reserve Bank of Australia is expected to keep its interbank overnight cash rate at 2% pa while the US Federal Reserve is expected to keep its federal funds rate at 0% pa over the next year, is the AUD is expected to , , or remain against the USD over the next year?

(a) Green is a stock's continuously compounded rate of return, also called the log gross discrete return. ##r_\text{cc} = \ln(P_1/P_0)##

(b) Blue is a stock's future price, ##P_1##

(c) Blue is a stock's gross discrete return. ##\text{GDR} = P_1/P_0##

(d) Blue is a stock's effective rate of return. ##r_\text{eff} = (P_1-P_0)/P_0##

(e) Red is a stock's net discrete return. ##\text{NDR} = \text{GDR}-1##

(a) The geometric average of the gross discrete returns (GAGDR) equals 1 which is 100%.

(b) ##\text{GAGDR} = \exp \left( \text{AALGDR} \right)##. The GAGDR is equal to the natural exponent of the arithmetic average of the logarithms of the gross discrete returns (AALGDR).

(c) ##\text{GAGDR} = \left( P_T/P_0 \right)^{1/T}##. The GAGDR equals the ratio of the last and first prices raised to the power of the inverse of the number of time periods between them.

(d) ##\text{LGAGDR} = \text{AALGDR}##. This is always true, regardless of the distribution of the prices or returns and the number of return observations. The logarithm of the geometric average of the gross discrete returns (LGAGDR) is always equal to the arithmetic average of the logarithms of the gross discrete returns (AALGDR).

(e) ##\text{LAAGDR} = \text{AALGDR} + \text{SDLGDR}^2/2##. This is always true, regardless of the distribution of the prices or returns and the number of return observations. The logarithm of the arithmetic average of the gross discrete returns (LAAGDR) equals the arithmetic average of the logarithms of the gross discrete returns (AALGDR) plus half the variance of the LGDR's.

(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) A normally distributed variable’s mean, median and mode are all expected to be equal.

(b) A log-normally distributed variable’s mean, median and mode are all expected to be different. Mean > median > mode.

(c) Future stock prices ##(P_t )## are often assumed to be log-normally distributed.

(d) Stocks’ annual net discrete returns ##(P_t/P_0-1)## must be normally distributed when stock prices ##(P_t)## are log-normally distributed.

(e) The total area under a probability density function (pdf) is always one.