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Question 26  APR, effective rate

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} ###



Question 69  interest tax shield, capital structure, leverage, WACC

Which statement about risk, required return and capital structure is the most correct?



Question 242  technical analysis, market efficiency

Select the most correct statement from the following.

'Chartists', also known as 'technical traders', believe that:



Question 465  NPV, perpetuity

The boss of WorkingForTheManCorp has a wicked (and unethical) idea. He plans to pay his poor workers one week late so that he can get more interest on his cash in the bank.

Every week he is supposed to pay his 1,000 employees $1,000 each. So $1 million is paid to employees every week.

The boss was just about to pay his employees today, until he thought of this idea so he will actually pay them one week (7 days) later for the work they did last week and every week in the future, forever.

Bank interest rates are 10% pa, given as a real effective annual rate. So ##r_\text{eff annual, real} = 0.1## and the real effective weekly rate is therefore ##r_\text{eff weekly, real} = (1+0.1)^{1/52}-1 = 0.001834569##

All rates and cash flows are real, the inflation rate is 3% pa and there are 52 weeks per year. The boss will always pay wages one week late. The business will operate forever with constant real wages and the same number of employees.

What is the net present value (NPV) of the boss's decision to pay later?



Question 539  debt terminology, fully amortising loan, bond pricing

A 'fully amortising' loan can also be called a:



Question 659  APR, effective rate, effective rate conversion, no explanation

A home loan company advertises an interest rate of 9% pa, payable monthly. Which of the following statements about the interest rate is NOT correct? All rates are given with an accuracy of 4 decimal places.



Question 752  IRR, NPV

All other things remaining equal, a project is worse if its:



Question 805  short selling

Short selling is a way to make money from falling prices. In what order must the following steps be completed to short-sell an asset? Let Tom, Dick and Harry be traders in the share market.

  • Step P: Purchase the asset from Harry.
  • Step G: Give the asset to Tom.
  • Step W: Wait and hope that the asset price falls.
  • Step B: Borrow the asset from Tom.
  • Step S: Sell the asset to Dick.

Select the statement with the correct order of steps.



Question 883  monetary policy, impossible trinity, foreign exchange rate

It’s often thought that the ideal currency or exchange rate regime would:

1. Be fixed against the USD;

2. Be convertible to and from USD for traders and investors so there are open goods, services and capital markets, and;

3. Allow independent monetary policy set by the country’s central bank, independent of the US central bank. So the country can set its own interest rate independent of the US Federal Reserve’s USD interest rate.

However, not all of these characteristics can be achieved. One must be sacrificed. This is the 'impossible trinity'.

Which of the following exchange rate regimes sacrifices convertibility?



Question 952  option, in the money option

If a put option is in-the-money, then the spot price (##S_0##) is than, than or to the put option's strike price (##K_T##)?