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 share was bought for $20 (at t=0) and paid its annual dividend of $3 one year later (at t=1). Just after the dividend was paid, the share price was $16 (at t=1). What was the total return, capital return and income return? Calculate your answers as effective annual rates.
The choices are given in the same order: ## r_\text{total},r_\text{capital},r_\text{income} ##.
A three year project's NPV is negative. The cash flows of the project include a negative cash flow at the very start and positive cash flows over its short life. The required return of the project is 10% pa. Select the most correct statement.
A 30 year Japanese government bond was just issued at par with a yield of 1.7% pa. The fixed coupon payments are semi-annual. The bond has a face value of $100.
Six months later, just after the first coupon is paid, the yield of the bond increases to 2% pa. What is the bond's new price?
In Australia in the 1980's, inflation was around 8% pa, and residential mortgage loan interest rates were around 14%.
In 2013, inflation was around 2.5% pa, and residential mortgage loan interest rates were around 4.5%.
If a person can afford constant mortgage loan payments of $2,000 per month, how much more can they borrow when interest rates are 4.5% pa compared with 14.0% pa?
Give your answer as a proportional increase over the amount you could borrow when interest rates were high ##(V_\text{high rates})##, so:
###\text{Proportional increase} = \dfrac{V_\text{low rates}-V_\text{high rates}}{V_\text{high rates}} ###
Assume that:
- Interest rates are expected to be constant over the life of the loan.
- Loans are interest-only and have a life of 30 years.
- Mortgage loan payments are made every month in arrears and all interest rates are given as annualised percentage rates (APR's) compounding per month.
High risk firms in danger of bankruptcy tend to have:
A 2-year futures contract on a stock paying a continuous dividend yield of 3% pa was bought when the underlying stock price was $10 and the risk free rate was 10% per annum with continuous compounding. Assume that investors are risk-neutral, so the stock's total required return is the risk free rate.
Find the forward price ##(F_2)## and value of the contract ##(V_0)## initially. Also find the value of the contract in 6 months ##(V_{0.5})## if the stock price rose to $12.
Which of the below formulas gives the payoff at maturity ##(f_T)## from being long a future? Let the underlying asset price at maturity be ##S_T## and the locked-in futures price be ##K_T##.
An effective monthly return of 1% ##(r_\text{eff monthly})## is equivalent to an effective annual return ##(r_\text{eff annual})## of: