A European bond paying annual coupons of 6% offers a yield of 10% pa.
Convert the yield into an effective monthly rate, an effective annual rate and an effective daily rate. Assume that there are 365 days in a year.
All answers are given in the same order:
### r_\text{eff, monthly} , r_\text{eff, yearly} , r_\text{eff, daily} ###
A highly levered risky firm is trying to raise more debt. The types of debt being considered, in no particular order, are senior bonds, junior bonds, bank accepted bills, promissory notes and bank loans.
Which of these forms of debt is the safest from the perspective of the debt investors who are thinking of investing in the firm's new debt?
An equity index fund manager controls a USD1 billion diversified equity portfolio with a beta of 1.3. The equity manager fears that a global recession will begin in the next year, causing equity prices to tumble. The market does not think that this will happen. If the fund manager wishes to reduce her portfolio beta to 0.5, how many S&P500 futures should she sell?
The US market equity index is the S&P500. One year CME futures on the S&P500 currently trade at 2,062 points and the spot price is 2,091 points. Each point is worth $250. How many one year S&P500 futures contracts should the fund manager sell?
Question 691 continuously compounding rate, effective rate, continuously compounding rate conversion, no explanation
A bank quotes an interest rate of 6% pa with quarterly compounding. Note that another way of stating this rate is that it is an annual percentage rate (APR) compounding discretely every 3 months.
Which of the following statements about this rate is NOT correct? All percentages are given to 6 decimal places. The equivalent:
Which of the below statements about utility is NOT generally accepted by economists? Most people are thought to:
Question 993 inflation, real and nominal returns and cash flows
In February 2020, the RBA cash rate was 0.75% pa and the Australian CPI inflation rate was 1.8% pa.
You currently have $100 in the bank which pays a 0.75% pa interest rate.
Apples currently cost $1 each at the shop and inflation is 1.8% pa which is the expected growth rate in the apple price.
This information is summarised in the table below, with some parts missing that correspond to the answer options. All rates are given as effective annual rates. Note that when payments are not specified as real, as in this question, they're conventionally assumed to be nominal.
Wealth in Dollars and Apples | ||||
Time (year) | Bank account wealth ($) | Apple price ($) | Wealth in apples | |
0 | 100 | 1 | 100 | |
1 | 100.75 | 1.018 | (a) | |
2 | (b) | (c) | (d) | |
Which of the following statements is NOT correct? Your: