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Question 319  foreign exchange rate, monetary policy, American and European terms

Investors expect the Reserve Bank of Australia (RBA) to keep the policy rate steady at their next meeting.

Then unexpectedly, the RBA announce that they will increase the policy rate by 25 basis points due to fears that the economy is growing too fast and that inflation will be above their target rate of 2 to 3 per cent.

What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar is likely to:



Question 323  foreign exchange rate, monetary policy, American and European terms

The market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting.

As expected, the RBA increases the policy rate by 25 basis points.

What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar will:



Question 329  DDM, expected and historical returns

In the dividend discount model:

### P_0= \frac{d_1}{r-g} ###

The pronumeral ##g## is supposed to be the:



Question 389  real option, option

You're thinking of starting a new cafe business, but you're not sure if it will be profitable.

You have to decide what type of cups, mugs and glasses you wish to buy. You can pay to have your cafe's name printed on them, or just buy the plain un-marked ones. For marketing reasons it's better to have the cafe name printed. But the plain un-marked cups, mugs and glasses maximise your:



Question 504  CFFA

Read the following financial statements and calculate the firm's free cash flow over the 2014 financial year.

UBar Corp
Income Statement for
year ending 30th June 2014
  $m
Sales 293
COGS 200
Rent expense 15
Gas expense 8
Depreciation 10
EBIT 60
Interest expense 0
Taxable income 60
Taxes 18
Net income 42
 
UBar Corp
Balance Sheet
as at 30th June 2014 2013
  $m $m
Assets
Cash 30 29
Accounts receivable 5 7
Pre-paid rent expense 1 0
Inventory 50 46
PPE 290 300
Total assets 376 382
 
Liabilities
Trade payables 20 18
Accrued gas expense 3 2
Non-current liabilities 0 0
Contributed equity 212 212
Retained profits 136 150
Asset revaluation reserve 5 0
Total L and OE 376 382
 

 

Note: all figures are given in millions of dollars ($m).

The firm's free cash flow over the 2014 financial year was:



Question 687  option, no explanation

Which of the following statements about call options 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 859  money supply, no explanation

The below table shows Australian monetary aggregates. Note that ‘M3’ is the sum of all the figures in the table and ‘ADI’ stands for Authorised Deposit-taking Institution such as a bank, building society or credit union.

Australian Monetary Aggregates
March 2017, AUD billions
Currency Current deposits
with banks 		Certificates of deposit
issued by banks 		Term deposits
with banks 		Other deposits
with banks 		Deposits with
non-bank ADIs 		M3
69.3 271.6 207.2 562.3 838.7 36.9 1986.0
 

 

Source: RBA Statistical Table D3 Monetary Aggregates.

Which of the following statements is NOT correct?



Question 894  balance of payments, current account, no explanation

Below are four graphs of Australia's external position, published in the RBA's chart pack.

Assume that all assets and liabilities are debt which makes interest income and equity which makes dividend income.

Which of the following statements is NOT correct? As at the end of 2017, Australia’s:



Question 956  option, Black-Scholes-Merton option pricing, delta hedging, hedging

A bank sells a European call option on a non-dividend paying stock and delta hedges on a daily basis. Below is the result of their hedging, with columns representing consecutive days. Assume that there are 365 days per year and interest is paid daily in arrears.

Delta Hedging a Short Call using Stocks and Debt
 
Description Symbol Days to maturity (T in days)
    60 59 58 57 56 55
Spot price ($) S 10000 10125 9800 9675 10000 10000
Strike price ($) K 10000 10000 10000 10000 10000 10000
Risk free cont. comp. rate (pa) r 0.05 0.05 0.05 0.05 0.05 0.05
Standard deviation of the stock's cont. comp. returns (pa) σ 0.4 0.4 0.4 0.4 0.4 0.4
Option maturity (years) T 0.164384 0.161644 0.158904 0.156164 0.153425 0.150685
Delta N[d1] = dc/dS 0.552416 0.582351 0.501138 0.467885 0.550649 0.550197
Probability that S > K at maturity in risk neutral world N[d2] 0.487871 0.51878 0.437781 0.405685 0.488282 0.488387
Call option price ($) c 685.391158 750.26411 567.990995 501.487157 660.982878 ?
Stock investment value ($) N[d1]*S 5524.164129 5896.301781 4911.152036 4526.788065 5506.488143 ?
Borrowing which partly funds stock investment ($) N[d2]*K/e^(r*T) 4838.772971 5146.037671 4343.161041 4025.300909 4845.505265 ?
Interest expense from borrowing paid in arrears ($) r*N[d2]*K/e^(r*T) 0.662891 0.704985 0.594994 0.551449 ?
Gain on stock ($) N[d1]*(SNew - SOld) 69.052052 -189.264008 -62.642245 152.062648 ?
Gain on short call option ($) -1*(cNew - cOld) -64.872952 182.273114 66.503839 -159.495721 ?
Net gain ($) Gains - InterestExpense 3.516209 -7.695878 3.266599 -7.984522 ?
 
Gamma Γ = d^2c/dS^2 0.000244 0.00024 0.000255 0.00026 0.000253 0.000255
Theta θ = dc/dT 2196.873429 2227.881353 2182.174706 2151.539751 2266.589184 2285.1895
 

 

In the last column when there are 55 days left to maturity there are missing values. Which of the following statements about those missing values is NOT correct?