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Question 204  time calculation, fully amortising loan, APR

You just signed up for a 30 year fully amortising mortgage loan with monthly payments of $1,500 per month. The interest rate is 9% pa which is not expected to change.

To your surprise, you can actually afford to pay $2,000 per month and your mortgage allows early repayments without fees. If you maintain these higher monthly payments, how long will it take to pay off your mortgage?



Question 417  NPV, market efficiency, DDM

A managed fund charges fees based on the amount of money that you keep with them. The fee is 2% of the end-of-year amount, paid at the end of every year.

This fee is charged regardless of whether the fund makes gains or losses on your money.

The fund offers to invest your money in shares which have an expected return of 10% pa before fees.

You are thinking of investing $100,000 in the fund and keeping it there for 40 years when you plan to retire.

How much money do you expect to have in the fund in 40 years? Also, what is the future value of the fees that the fund expects to earn from you? Give both amounts as future values in 40 years. Assume that:

  • The fund has no private information.
  • Markets are weak and semi-strong form efficient.
  • The fund's transaction costs are negligible.
  • The cost and trouble of investing your money in shares by yourself, without the managed fund, is negligible.
  • The fund invests its fees in the same companies as it invests your funds in, but with no fees.

The below answer choices list your expected wealth in 40 years and then the fund's expected wealth in 40 years.



Question 458  capital budgeting, no explanation

Which of the following is NOT a valid method to estimate future revenues or costs in a pro-forma income statement when trying to value a company?



Question 510  bond pricing

Calculate the price of a newly issued ten year bond with a face value of $100, a yield of 8% pa and a fixed coupon rate of 6% pa, paid semi-annually. So there are two coupons per year, paid in arrears every six months.



Question 647  open interest, trade volume, future

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 a future from Bob.

2. Chris buys a future from Delta.

3. Delta buys a future from Bob.

These were the only trades made in this equity index future. What was the trading volume and what is the open interest?



Question 652  future, continuously compounding rate

An equity index is currently at 5,200 points. The 6 month futures price is 5,300 points and the total required return is 6% pa with continuous compounding. Each index point is worth $25.

What is the implied dividend yield as a continuously compounded rate per annum?



Question 688  future, hedging

A pig farmer in the US is worried about the price of hogs falling and wants to lock in a price now. In one year the pig farmer intends to sell 1,000,000 pounds of hogs. Luckily, one year CME lean hog futures expire on the exact day that he wishes to sell his pigs. The futures have a notional principal of 40,000 pounds (about 18 metric tons) and currently trade at a price of 63.85 cents per pound. The underlying lean hogs spot price is 77.15 cents per pound. The correlation between the futures price and the underlying hogs price is one and the standard deviations are both 4 cents per pound. The initial margin is USD1,500 and the maintenance margin is USD1,200 per futures contract.

Which of the below statements is NOT correct?



Question 712  effective rate conversion

An effective monthly return of 1% ##(r_\text{eff monthly})## is equivalent to an effective annual return ##(r_\text{eff annual})## of:



Question 764  bond pricing, no explanation

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.



Question 778  CML, systematic and idiosyncratic risk, portfolio risk, CAPM, no explanation

The capital market line (CML) is shown in the graph below. The total standard deviation is denoted by σ and the expected return is μ. Assume that markets are efficient so all assets are fairly priced.

Image of CML graph

Which of the below statements is NOT correct?




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