Fight Finance

(a) -3.74 years

(b) 1.81 years

(c) 3.33 years

(d) 3.61 years

(e) 3.74 years

(a) 17,435.74

(b) 1,438.92

(c) 1,414.49

(d) 1,200.00

(e) 666.67

(a) The project should be accepted.

(b) The project's IRR is less than its required return.

(c) The project's IRR is more than its required return.

(d) The project's IRR is equal to its required return.

(e) The project is under-priced.

(a) 0.20

(b) 1.20

(c) 1.80

(d) 2.25

(e) 2.80

Two put options are exactly the same, but one has a low and the other has a high exercise price. Which option would you expect to have the higher price, the option with the or exercise price, or should they have the price?

(a) Income and capital returns both rise.

(b) Income and capital returns both fall.

(c) Income return rises and its capital return falls.

(d) Income return falls and its capital return rises.

(e) Income and capital returns are constant.

(a) Competition: Firms in competitive markets earn zero economic profit.

(b) Opportunity cost: The cost of the next best alternative foregone should be subtracted.

(c) Separation of the investment and financing decisions.

(d) Diversification: Risks can often be reduced by pooling them together.

(e) Sunk costs: Costs that cannot be recouped should be ignored.

(a) Buyers of call options are required to pay an initial margin at the start.

(b) Call options are a zero-sum game in the sense that the winner gains at the expense of the loser.

(c) Buyers of call options have to pay the option price at the start.

(d) Buyers of call options do not care about the credit risk of the original call option seller since the contract is novated by the exchange.

(e) Speculators who sell call options hope that the underlying asset price falls.

(a) Mr Blue would enjoy the gamble.

(b) Miss Red would be indifferent to gambling or not.

(c) Mrs Green would dislike the gamble.

(d) Mr Blue's certainty equivalent of the risky gamble is $70.71. This is more than his current wealth which is why he would like to gamble.

(e) Miss Red's certainty equivalent of the risky gamble is $50. This is the same as her current wealth which is why she is indifferent to gambling or not.

(a) The APR compounding monthly is 4.5% pa.

(b) The effective monthly rate is 0.3675% pa.

(c) The effective annual rate is 4.594% pa.

(d) The effective 6 month rate is 2.2712% pa.

(e) The APR compounding semi-annually is 4.5424% pa.