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Question 25  bond pricing, zero coupon bond, term structure of interest rates, forward interest rate

A European company just issued two bonds, a

  • 2 year zero coupon bond at a yield of 8% pa, and a
  • 3 year zero coupon bond at a yield of 10% pa.

What is the company's forward rate over the third year (from t=2 to t=3)? Give your answer as an effective annual rate, which is how the above bond yields are quoted.



Question 68  WACC, CFFA, capital budgeting

A manufacturing company is considering a new project in the more risky services industry. The cash flows from assets (CFFA) are estimated for the new project, with interest expense excluded from the calculations. To get the levered value of the project, what should these unlevered cash flows be discounted by?

Assume that the manufacturing firm has a target debt-to-assets ratio that it sticks to.



Question 207  income and capital returns, bond pricing, coupon rate, no explanation

For a bond that pays fixed semi-annual coupons, how is the annual coupon rate defined, and how is the bond's annual income yield from time 0 to 1 defined mathematically?

Let: ##P_0## be the bond price now,

##F_T## be the bond's face value,

##T## be the bond's maturity in years,

##r_\text{total}## be the bond's total yield,

##r_\text{income}## be the bond's income yield,

##r_\text{capital}## be the bond's capital yield, and

##C_t## be the bond's coupon at time t in years. So ##C_{0.5}## is the coupon in 6 months, ##C_1## is the coupon in 1 year, and so on.



Question 276  derivative terminology, option

The 'option strike price' in an option contract, also known as the exercise price, is paid at the start when the option contract is agreed to. or ?


Question 277  derivative terminology, future

The 'initial margin', also known as the performance bond in a futures contract, is paid at the start when the futures contract is agreed to. or ?


Question 318  foreign exchange rate, American and European terms

How is the AUD normally quoted in Australia? Using or terms?


Question 487  capital budgeting, opportunity cost, sunk cost

A young lady is trying to decide if she should attend university or begin working straight away in her home town.

The young lady's grandma says that she should not go to university because she is less likely to marry the local village boy whom she likes because she will spend less time with him if she attends university.

What's the correct way to classify this item from a capital budgeting perspective when trying to decide whether to attend university?

The cost of not marrying the local village boy should be classified as:



Question 574  inflation, real and nominal returns and cash flows, NPV

What is the present value of a nominal payment of $100 in 5 years? The real discount rate is 10% pa and the inflation rate is 3% pa.



Question 629  yield curve, forward interest rate

Which of the following statements about yield curves is NOT correct?



Question 929  standard error, mean and median returns, mode return, return distribution, arithmetic and geometric averages, continuously compounding rate

The arithmetic average continuously compounded or log gross discrete return (AALGDR) on the ASX200 accumulation index over the 24 years from 31 Dec 1992 to 31 Dec 2016 is 9.49% pa.

The arithmetic standard deviation (SDLGDR) is 16.92 percentage points pa.

Assume that the data are sample statistics, not population statistics. Assume that the log gross discrete returns are normally distributed.

What is the standard error of your estimate of the sample ASX200 accumulation index arithmetic average log gross discrete return (AALGDR) over the 24 years from 1992 to 2016?