Fight Finance

(a) Bond A will have a higher price.

(b) Bond B will have a higher price.

(c) Bonds A and B will have the same price.

(d) The higher priced bond can't be determined without knowing their yields.

(e) The higher priced bond can't be determined without knowing the inflation rate.

(a) 9,023 bonds

(b) 10,000 bonds

(c) 11,485 bonds

(d) 12,713 bonds

(e) 12,768 bonds

(a) $114.7202

(b) $114.8775

(c) $122.9398

(d) $126.628

(e) $174.3874

(a) -1,000%

(b) -150%

(c) -100%

(d) -15%

(e) -10%

(a) An increase in revenue (Rev).

(b) An increase in rent expense (part of fixed costs, FC).

(c) An increase in depreciation expense (Depr).

(d) An decrease in net working capital (ΔNWC).

(e) An increase in dividends.

(a) ##C_\text{real, t}=C_\text{nominal,t}.(1+r_\text{inflation})^t##

(b) ##C_\text{real,t}=\dfrac{C_\text{nominal,t}}{(1+r_\text{inflation})^t} ##

(c) ##C_\text{real,t}=\dfrac{C_\text{nominal,t}}{r_\text{inflation}} ##

(d) ##C_\text{real,t}=C_\text{nominal,t}.r_\text{inflation} ##

(e) ##C_\text{real,t}=C_\text{nominal,t}.r_\text{inflation}.t##

If the Reserve Bank of Australia is expected to keep its interbank overnight cash rate at 2% pa while the US Federal Reserve is expected to keep its federal funds rate at 0% pa over the next year, is the AUD is expected to , , or remain against the USD over the next year?

(a) Prefer more to less, meaning that they will always like to have more wealth.

(b) Be risk averse, meaning that they dislike risk as measured by the standard deviation of wealth.

(c) Have a positively sloped utility function, so the gradient or first derivative of the utility function is always positive.

(d) Have a utility function that increases at a diminishing rate. So the shape is concave down like a frown, or the second derivative is always negative.

(e) Have a utility function that rises until it reaches the satiation point, then it falls because too much wealth causes problems.

(a) Higher debt leads to higher interest expense.

(b) Higher interest expense leads to lower profit before tax, following on from above.

(c) Lower profit before tax leads to lower tax payments, following on from above.

(d) Lower tax payments lead to higher cash flow from assets, following on from above.

(e) Lower profit after tax leads to a lower share price, following on from above.

(a) You have the right to buy the underlying stock in 3 months’ time for a price of $50 if you want.

(b) If the dividend in 4 months were unexpectedly cancelled because the firm decided to re-invest its cash rather than pay it out then the 3 month call option price would be unaffected.

(c) If the stock price is $49 in 3 months then you wouldn’t exercise the ‘out of the money’ option.

(d) If the stock price is $51 in 3 months then you wouldn’t exercise or else you’ll incur a loss of $3.

(e) If the stock price is $57 in 3 months then you would exercise. Your profit would be $3 and payoff at maturity $7.