A fixed coupon bond was bought for $90 and paid its annual coupon of $3 one year later (at t=1 year). Just after the coupon was paid, the bond price was $92 (at t=1 year). What was the total return, capital return and income return? Calculate your answers as effective annual rates.
The choices are given in the same order: ## r_\text{total},r_\text{capital},r_\text{income} ##.
In Australia, domestic university students are allowed to buy concession tickets for the bus, train and ferry which sell at a discount of 50% to full-price tickets.
The Australian Government do not allow international university students to buy concession tickets, they have to pay the full price.
Some international students see this as unfair and they are willing to pay for fake university identification cards which have the concession sticker.
What is the most that an international student would be willing to pay for a fake identification card?
Assume that international students:
- consider buying their fake card on the morning of the first day of university from their neighbour, just before they leave to take the train into university.
- buy their weekly train tickets on the morning of the first day of each week.
- ride the train to university and back home again every day seven days per week until summer holidays 40 weeks from now. The concession card only lasts for those 40 weeks. Assume that there are 52 weeks in the year for the purpose of interest rate conversion.
- a single full-priced one-way train ride costs $5.
- have a discount rate of 11% pa, given as an effective annual rate.
Approach this question from a purely financial view point, ignoring the illegality, embarrassment and the morality of committing fraud.
All things remaining equal, the higher the correlation of returns between two stocks:
The following cash flows are expected:
- Constant perpetual yearly payments of $70, with the first payment in 2.5 years from now (first payment at t=2.5).
- A single payment of $600 in 3 years and 9 months (t=3.75) from now.
What is the NPV of the cash flows if the discount rate is 10% given as an effective annual rate?
Question 626 cross currency interest rate parity, foreign exchange rate, forward foreign exchange rate
The Australian cash rate is expected to be 2% pa over the next one year, while the Japanese cash rate is expected to be 0% pa, both given as nominal effective annual rates. The current exchange rate is 100 JPY per AUD.
What is the implied 1 year forward foreign exchange rate?
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.
A trader sells a one year futures contract on crude oil. The contract is for the delivery of 1,000 barrels. The current futures price is $38.94 per barrel. The initial margin is $3,410 per contract, and the maintenance margin is $3,100 per contract.
What is the smallest price change that would lead to a margin call for the seller?
Which of the following terms about options are NOT synonyms?
A non-dividend paying stock has a current price of $20.
The risk free rate is 5% pa given as a continuously compounded rate.
A 2 year futures contract on the stock has a futures price of $24.
You suspect that the futures contract is mis-priced and would like to conduct a risk-free arbitrage that requires zero capital. Which of the following steps about arbitraging the situation is NOT correct?