A 180-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 8% pa and there are 365 days in the year. What is its price now?
A three year corporate bond yields 12% pa with a coupon rate of 10% pa, paid semi-annually.
Find the effective six month yield, effective annual yield and the effective daily yield. Assume that each month has 30 days and that there are 360 days in a year.
All answers are given in the same order:
##r_\text{eff semi-annual}##, ##r_\text{eff yearly}##, ##r_\text{eff daily}##.
Select the most correct statement from the following.
'Chartists', also known as 'technical traders', believe that:
The total return of any asset can be broken down in different ways. One possible way is to use the dividend discount model (or Gordon growth model):
###p_0 = \frac{c_1}{r_\text{total}-r_\text{capital}}###
Which, since ##c_1/p_0## is the income return (##r_\text{income}##), can be expressed as:
###r_\text{total}=r_\text{income}+r_\text{capital}###
So the total return of an asset is the income component plus the capital or price growth component.
Another way to break up total return is to use the Capital Asset Pricing Model:
###r_\text{total}=r_\text{f}+β(r_\text{m}- r_\text{f})###
###r_\text{total}=r_\text{time value}+r_\text{risk premium}###
So the risk free rate is the time value of money and the term ##β(r_\text{m}- r_\text{f})## is the compensation for taking on systematic risk.
Using the above theory and your general knowledge, which of the below equations, if any, are correct?
(I) ##r_\text{income}=r_\text{time value}##
(II) ##r_\text{income}=r_\text{risk premium}##
(III) ##r_\text{capital}=r_\text{time value}##
(IV) ##r_\text{capital}=r_\text{risk premium}##
(V) ##r_\text{income}+r_\text{capital}=r_\text{time value}+r_\text{risk premium}##
Which of the equations are correct?
Question 407 income and capital returns, inflation, real and nominal returns and cash flows
A stock has a real expected total return of 7% pa and a real expected capital return of 2% pa.
Inflation is expected to be 2% pa. All rates are given as effective annual rates.
What is the nominal expected total return, capital return and dividend yield? The answers below are given in the same order.
A firm has a debt-to-assets ratio of 20%. What is its debt-to-equity ratio?
Question 701 utility, risk aversion, utility function, gamble
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Each person has $50 of initial wealth. A coin toss game is offered to each person at a casino where the player can win or lose $50. Each player can flip a coin and if they flip heads, they receive $50. If they flip tails then they will lose $50. Which of the following statements is NOT correct?
Question 730 DDM, income and capital returns, no explanation
A stock’s current price is $1. Its expected total return is 10% pa and its long term expected capital return is 4% pa. It pays an annual dividend and the next one will be paid in one year. All rates are given as effective annual rates. The dividend discount model is thought to be a suitable model for the stock. Ignore taxes. Which of the following statements about the stock is NOT correct?
Question 915 price gains and returns over time, IRR, NPV, income and capital returns, effective return
For a share price to double over 7 years, what must its capital return be as an effective annual rate?
Question 925 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate, no explanation
The arithmetic average and standard deviation of returns on the ASX200 accumulation index over the 24 years from 31 Dec 1992 to 31 Dec 2016 were calculated as follows:
###\bar{r}_\text{yearly} = \dfrac{ \displaystyle\sum\limits_{t=1992}^{24}{\left( \ln \left( \dfrac{P_{t+1}}{P_t} \right) \right)} }{T} = \text{AALGDR} =0.0949=9.49\% \text{ pa}###
###\sigma_\text{yearly} = \dfrac{ \displaystyle\sum\limits_{t=1992}^{24}{\left( \left( \ln \left( \dfrac{P_{t+1}}{P_t} \right) - \bar{r}_\text{yearly} \right)^2 \right)} }{T} = \text{SDLGDR} = 0.1692=16.92\text{ pp pa}###
Assume that the log gross discrete returns are normally distributed and that the above estimates are true population statistics, not sample statistics, so there is no standard error in the sample mean or standard deviation estimates. Also assume that the standardised normal Z-statistic corresponding to a one-tail probability of 2.5% is exactly -1.96.
Which of the following statements is NOT correct? If you invested $1m today in the ASX200, then over the next 4 years: