Fight Finance

(a) $1,000

(b) $1,106.6497

(c) $2,400

(d) $2,571.8327

(e) $2,641.5525

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 ?

(a) Short sellers benefit from price falls.

(b) To short sell, you must borrow the asset from person A and sell it to person B, then later on buy an identical asset from person C and return it to person A.

(c) Short selling only works for assets that are 'fungible' which means that there are many that are identical and substitutable, such as shares and bonds and unlike real estate.

(d) An investor who short-sells an asset has a negative weight in that asset.

(e) An investor who short-sells an asset is said to be 'long' that asset.

(a) From 0 to 10% pa.

(b) From 0 to 5% pa.

(c) At 5.5% pa.

(d) From 6 to 20% pa.

(e) From 0 to 20% pa.

(a) Competition.

(b) Opportunity costs.

(c) Separation of the investment and financing decisions.

(d) Diversification.

(e) The stand-alone principle, incremental cash flows and sunk costs.

(a) Obligation to buy the underlying oil at $44 per barrel.

(b) Obligation to sell the underlying oil at $44 per barrel.

(c) Right to buy the underlying oil at $44 per barrel if she wants.

(d) Right to sell the underlying oil at $44 per barrel if she wants.

(e) Obligation to buy the underlying oil at $44 per barrel if her counter party chooses to sell it.

(a) Prices, ##P_1##.

(b) Gross discrete returns per annum, ##r_{\text{gdr 0 }\rightarrow \text{ 1}} = \dfrac{P_1}{P_0} ##.

(c) Effective annual returns per annum also known as net discrete returns, ##r_{\text{eff 0 }\rightarrow \text{ 1}} = \dfrac{P_1 - P_0}{P_0} = \dfrac{P_1}{P_0}-1##.

(d) Continuously compounded returns per annum, ##r_{\text{cc 0 }\rightarrow \text{ 1}} = \ln \left( \dfrac{P_1}{P_0} \right)##.

(e) Annualised percentage rates compounding per month, ##r_{\text{apr comp monthly 0 }\rightarrow \text{ 1 mth}} = \left( \dfrac{P_1 - P_0}{P_0} \right) \times 12##.

(a) ##P_0=\dfrac{C_\text{1,nominal}}{r_\text{nominal} - g_\text{nominal}}##

(b) ##P_0 =\dfrac{C_0 (1+g_\text{nominal} )^1}{r_\text{nominal} - g_\text{nominal}}##

(c) ##P_0=\dfrac{C_\text{1,real}}{r_\text{real} - g_\text{real}}##

(d) ##P_0=\dfrac{C_0 (1+r_\text{real})^1}{r_\text{real} - g_\text{real}}##

(e) ##P_0=\dfrac{C_0(1+r_\text{nominal} )^1}{r_\text{nominal} - g_\text{nominal}} - C_0##

(a) Firm A is less risky than Firm B. Firm A would have a higher credit rating.

(b) Firm A has the absolute advantage issuing bonds in both the fixed and floating coupon bond markets.

(c) Firm A has a comparative advantage issuing bonds in the floating coupon bond market.

(d) The net benefit from the swap available to Firm A is 0.25%.

(e) The swap rate between Firm B and the Bank would be 2.5% pa.

(a) The WACC before tax is 6.46% pa.

(b) The WACC after tax is 5.50% pa.

(c) The current levered asset value including tax shields is $603.839k.

(d) The current debt value is $600k and the interest tax shield benefit over the first year is $7.2k (at t=1).

(e) The current share price is $1.50.