A four year bond has a face value of $100, a yield of 9% and a fixed coupon rate of 6%, paid semi-annually. What is its price?
Your neighbour asks you for a loan of $100 and offers to pay you back $120 in one year.
You don't actually have any money right now, but you can borrow and lend from the bank at a rate of 10% pa. Rates are given as effective annual rates.
Assume that your neighbour will definitely pay you back. Ignore interest tax shields and transaction costs.
The Net Present Value (NPV) of lending to your neighbour is $9.09. Describe what you would do to actually receive a $9.09 cash flow right now with zero net cash flows in the future.
Question 295 inflation, real and nominal returns and cash flows, NPV
When valuing assets using discounted cash flow (net present value) methods, it is important to consider inflation. To properly deal with inflation:
(I) Discount nominal cash flows by nominal discount rates.
(II) Discount nominal cash flows by real discount rates.
(III) Discount real cash flows by nominal discount rates.
(IV) Discount real cash flows by real discount rates.
Which of the above statements is or are correct?
Question 320 foreign exchange rate, monetary policy, American and European terms
Investors expect the Reserve Bank of Australia (RBA) to decrease the overnight cash rate at their next meeting.
Then unexpectedly, the RBA announce that they will keep the policy rate unchanged.
What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar is likely to:
There are many ways to calculate a firm's free cash flow (FFCF), also called cash flow from assets (CFFA). Some include the annual interest tax shield in the cash flow and some do not.
Which of the below FFCF formulas include the interest tax shield in the cash flow?
###(1) \quad FFCF=NI + Depr - CapEx -ΔNWC + IntExp### ###(2) \quad FFCF=NI + Depr - CapEx -ΔNWC + IntExp.(1-t_c)### ###(3) \quad FFCF=EBIT.(1-t_c )+ Depr- CapEx -ΔNWC+IntExp.t_c### ###(4) \quad FFCF=EBIT.(1-t_c) + Depr- CapEx -ΔNWC### ###(5) \quad FFCF=EBITDA.(1-t_c )+Depr.t_c- CapEx -ΔNWC+IntExp.t_c### ###(6) \quad FFCF=EBITDA.(1-t_c )+Depr.t_c- CapEx -ΔNWC### ###(7) \quad FFCF=EBIT-Tax + Depr - CapEx -ΔNWC### ###(8) \quad FFCF=EBIT-Tax + Depr - CapEx -ΔNWC-IntExp.t_c### ###(9) \quad FFCF=EBITDA-Tax - CapEx -ΔNWC### ###(10) \quad FFCF=EBITDA-Tax - CapEx -ΔNWC-IntExp.t_c###The formulas for net income (NI also called earnings), EBIT and EBITDA are given below. Assume that depreciation and amortisation are both represented by 'Depr' and that 'FC' represents fixed costs such as rent.
###NI=(Rev - COGS - Depr - FC - IntExp).(1-t_c )### ###EBIT=Rev - COGS - FC-Depr### ###EBITDA=Rev - COGS - FC### ###Tax =(Rev - COGS - Depr - FC - IntExp).t_c= \dfrac{NI.t_c}{1-t_c}###Which of the below formulas gives the profit ##(\pi)## from being short a call option? Let the underlying asset price at maturity be ##S_T##, the exercise price be ##X_T## and the option price be ##f_{LC,0}##. Note that ##S_T##, ##X_T## and ##f_{LC,0}## are all positive numbers.
Which of the below formulas gives the profit ##(\pi)## from being short a put option? Let the underlying asset price at maturity be ##S_T##, the exercise price be ##X_T## and the option price be ##f_{LP,0}##. Note that ##S_T##, ##X_T## and ##f_{LP,0}## are all positive numbers.
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Note that a fair gamble is a bet that has an expected value of zero, such as paying $0.50 to win $1 in a coin flip with heads or nothing if it lands tails. Fairly priced insurance is when the expected present value of the insurance premiums is equal to the expected loss from the disaster that the insurance protects against, such as the cost of rebuilding a home after a catastrophic fire.
Which of the following statements is NOT correct?
Question 924 foreign exchange rate, forward foreign exchange rate, arbitrage, forward interest rate, no explanation
Suppose that the yield curve in the United States of America and Australia is flat and that the current:
- 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?
Which type of business organisation has the most checks and balances against the detrimental effects of the principal-agent problem since it's potentially the most exposed?