A 2 year corporate bond yields 3% pa with a coupon rate of 5% pa, paid semi-annually.

Find the effective monthly rate, effective six month rate, and effective annual rate.

##r_\text{eff monthly}##, ##r_\text{eff 6 month}##, ##r_\text{eff annual}##.

**Question 278** inflation, real and nominal returns and cash flows

Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year.

**Question 637** option, option payoff at maturity, no explanation

Which of the below formulas gives the payoff ##(f)## at maturity ##(T)## from being **short** a **call** option? Let the underlying asset price at maturity be ##S_T## and the exercise price be ##X_T##.

**Question 786** fixed for floating interest rate swap, intermediated swap

The below table summarises the borrowing costs confronting two companies A and B.

Bond Market Yields |
||||

Fixed Yield to Maturity (%pa) | Floating Yield (%pa) | |||

Firm A | 3 | L - 0.4 | ||

Firm B | 5 | L + 1 | ||

Firm A wishes to borrow at a floating rate and Firm B wishes to borrow at a fixed rate. Design an **intermediated** swap (which means there will actually be two swaps) that nets a bank **0.1**% and shares the remaining swap benefits between Firms A and B equally. Which of the following statements about the swap is **NOT** correct?

**Question 831** option, American option, no explanation

Which of the following statements about **American**-style options is **NOT** correct? American-style:

The market's expected total return is 10% pa and the risk free rate is 5% pa, both given as effective annual rates.

A stock has a beta of 0.7.

In the last 5 minutes, bad economic news was released showing a higher chance of recession. Over this time the share market **fell** by **2**%. The risk free rate was unchanged. What do you think was the stock's historical return over the last **5 minutes**, given as an effective 5 minute rate?

**Question 959** negative gearing, leverage, capital structure, interest tax shield, real estate

Last year, two friends Gear and Nogear invested in residential apartments. Each invested $1 million of their own money (their net wealth).

Apartments cost $1,000,000 last year and they earned net rents of $30,000 pa over the last year. Net rents are calculated as rent revenues less the costs of renting such as property maintenance, land tax and council rates. However, interest expense and personal income taxes are not deducted from net rents.

Gear and Nogear funded their purchases in different ways:

- Gear used $
**1,000,000**of her own money and borrowed $**4,000,000**from the bank in the form of an interest-only loan with an interest rate of**5**% pa to buy**5**apartments. - Nogear used $
**1,000,000**of his own money to buy one apartment. He has no mortgage loan on his property.

Both Gear and Nogear also work in high-paying jobs and are subject personal marginal tax rates of **45**%.

Which of the below statements about the past year is **NOT** correct?

**Question 979** balance of payments, current account, no explanation

This question is about the Balance of Payments.

Assume that all foreign and domestic assets are either debt which makes interest income or equity which makes dividend income, and vice versa for liabilities which cost interest and dividend payments, respectively.

Which of the following statements is **NOT** correct?