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Question 256  APR, effective rate

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 324  foreign exchange rate

The Chinese government attempts to fix its exchange rate against the US dollar and at the same time use monetary policy to fix its interest rate at a set level.

To be able to fix its exchange rate and interest rate in this way, what does the Chinese government actually do?

  1. Adopts capital controls to prevent financial arbitrage by private firms and individuals.
  2. Adopts the same interest rate (monetary policy) as the United States.
  3. Fixes inflation so that the domestic real interest rate is equal to the United States' real interest rate.

Which of the above statements is or are true?

Question 447  payout policy, corporate financial decision theory

Payout policy is most closely related to which part of a business?

Question 451  DDM

The first payment of a constant perpetual annual cash flow is received at time 5. Let this cash flow be ##C_5## and the required return be ##r##.

So there will be equal annual cash flows at time 5, 6, 7 and so on forever, and all of the cash flows will be equal so ##C_5 = C_6 = C_7 = ...##

When the perpetuity formula is used to value this stream of cash flows, it will give a value (V) at time:

Question 490  expected and historical returns, accounting ratio

Which of the following is NOT a synonym of 'required return'?

Question 500  NPV, IRR

The below graph shows a project's net present value (NPV) against its annual discount rate.

For what discount rate or range of discount rates would you accept and commence the project?

All answer choices are given as approximations from reading off the graph.

Question 797  option, Black-Scholes-Merton option pricing, option delta, no explanation

Which of the following quantities from the Black-Scholes-Merton option pricing formula gives the risk-neutral probability that a European put option will be exercised?

Question 820  option, future, no explanation

What derivative position are you exposed to if you have the obligation to sell the underlying asset at maturity, so you will definitely be forced to sell the underlying asset?

Question 835  VaR, no explanation

A company has a 95% daily Value at Risk (VaR) of $1 million. The units of this VaR are in:

Question 876  foreign exchange rate, forward foreign exchange rate, cross currency interest rate parity

Suppose the yield curve in the USA and Germany is flat and the:

  • USD federal funds rate at the Federal Reserve is 1% pa;
  • EUR deposit facility at the European Central Bank is -0.4% pa (note the negative sign);
  • Spot EUR exchange rate is 1 USD per EUR;
  • One year forward EUR exchange rate is 1.011 USD per EUR.

You suspect that there’s an arbitrage opportunity. Which one of the following statements about the potential arbitrage opportunity is NOT correct?

Copyright © 2014 Keith Woodward