Question 35 bond pricing, zero coupon bond, term structure of interest rates, forward interest rate
A European company just issued two bonds, a
- 1 year zero coupon bond at a yield of 8% pa, and a
- 2 year zero coupon bond at a yield of 10% pa.
What is the company's forward rate over the second year (from t=1 to t=2)? Give your answer as an effective annual rate, which is how the above bond yields are quoted.
The phone company Telstra have 2 mobile service plans on offer which both have the same amount of phone call, text message and internet data credit. Both plans have a contract length of 24 months and the monthly cost is payable in advance. The only difference between the two plans is that one is a:
- 'Bring Your Own' (BYO) mobile service plan, costing $50 per month. There is no phone included in this plan. The other plan is a:
- 'Bundled' mobile service plan that comes with the latest smart phone, costing $71 per month. This plan includes the latest smart phone.
Neither plan has any additional payments at the start or end.
The only difference between the plans is the phone, so what is the implied cost of the phone as a present value?
Assume that the discount rate is 2% per month given as an effective monthly rate, the same high interest rate on credit cards.
A stock pays semi-annual dividends. It just paid a dividend of $10. The growth rate in the dividend is 1% every 6 months, given as an effective 6 month rate. You estimate that the stock's required return is 21% pa, as an effective annual rate.
Using the dividend discount model, what will be the share price?
Question 119 market efficiency, fundamental analysis, joint hypothesis problem
Your friend claims that by reading 'The Economist' magazine's economic news articles, she can identify shares that will have positive abnormal expected returns over the next 2 years. Assuming that her claim is true, which statement(s) are correct?
(i) Weak form market efficiency is broken.
(ii) Semi-strong form market efficiency is broken.
(iii) Strong form market efficiency is broken.
(iv) The asset pricing model used to measure the abnormal returns (such as the CAPM) is either wrong (mis-specification error) or is measured using the wrong inputs (data errors) so the returns may not be abnormal but rather fair for the level of risk.
Select the most correct response:
A project's net present value (NPV) is negative. Select the most correct statement.
A European put option will mature in ##T## years with a strike price of ##K## dollars. The underlying asset has a price of ##S## dollars.
What is an expression for the payoff at maturity ##(f_T)## in dollars from owning (being long) the put option?
Which of the following decisions relates to the current assets and current liabilities of the firm?
In the dividend discount model (DDM), share prices fall when dividends are paid. Let the high price before the fall be called the peak, and the low price after the fall be called the trough.
###P_0=\dfrac{C_1}{r-g}###
Which of the following statements about the DDM is NOT correct?
Question 948 VaR, expected shortfall
Below is a historical sample of returns on the S&P500 capital index.
S&P500 Capital Index Daily Returns Ranked from Best to Worst |
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10,000 trading days from 4th August 1977 to 24 March 2017 based on closing prices. |
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Rank | Date (DD-MM-YY) |
Continuously compounded daily return (% per day) |
1 | 21-10-87 | 9.23 |
2 | 08-03-83 | 8.97 |
3 | 13-11-08 | 8.3 |
4 | 30-09-08 | 8.09 |
5 | 28-10-08 | 8.01 |
6 | 29-10-87 | 7.28 |
… | … | … |
9980 | 11-12-08 | -5.51 |
9981 | 22-10-08 | -5.51 |
9982 | 08-08-11 | -5.54 |
9983 | 22-09-08 | -5.64 |
9984 | 11-09-86 | -5.69 |
9985 | 30-11-87 | -5.88 |
9986 | 14-04-00 | -5.99 |
9987 | 07-10-98 | -6.06 |
9988 | 08-01-88 | -6.51 |
9989 | 27-10-97 | -6.55 |
9990 | 13-10-89 | -6.62 |
9991 | 15-10-08 | -6.71 |
9992 | 29-09-08 | -6.85 |
9993 | 07-10-08 | -6.91 |
9994 | 14-11-08 | -7.64 |
9995 | 01-12-08 | -7.79 |
9996 | 29-10-08 | -8.05 |
9997 | 26-10-87 | -8.4 |
9998 | 31-08-98 | -8.45 |
9999 | 09-10-08 | -12.9 |
10000 | 19-10-87 | -23.36 |
Mean of all 10,000: | 0.0354 | |
Sample standard deviation of all 10,000: | 1.2062 | |
Sources: Bloomberg and S&P. | ||
Assume that the one-tail Z-statistic corresponding to a probability of 99.9% is exactly 3.09. Which of the following statements is NOT correct? Based on the historical data, the 99.9% daily: