Fight Finance

Courses  Tags  Random  All  Recent  Scores

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.



Question 77  interest tax shield

The equations for Net Income (NI, also known as Earnings or Net Profit After Tax) and Cash Flow From Assets (CFFA, also known as Free Cash Flow to the Firm) per year are:

###NI=(Rev-COGS-FC-Depr-IntExp).(1-t_c)###

###CFFA=NI+Depr-CapEx - \varDelta NWC+IntExp###

For a firm with debt, what is the amount of the interest tax shield per year?



Question 90  CAPM, risk

According to the theory of the Capital Asset Pricing Model (CAPM), total variance can be broken into two components, systematic variance and idiosyncratic variance. Which of the following events would be considered the most diversifiable according to the theory of the CAPM?



Question 265  APR, Annuity

On his 20th birthday, a man makes a resolution. He will deposit $30 into a bank account at the end of every month starting from now, which is the start of the month. So the first payment will be in one month. He will write in his will that when he dies the money in the account should be given to charity.

The bank account pays interest at 6% pa compounding monthly, which is not expected to change.

If the man lives for another 60 years, how much money will be in the bank account if he dies just after making his last (720th) payment?



Question 301  leverage, capital structure, real estate

Your friend just bought a house for $1,000,000. He financed it using a $900,000 mortgage loan and a deposit of $100,000.

In the context of residential housing and mortgages, the 'equity' or 'net wealth' tied up in a house is the value of the house less the value of the mortgage loan. Assuming that your friend's only asset is his house, his net wealth is $100,000.

If house prices suddenly fall by 15%, what would be your friend's percentage change in net wealth?

Assume that:

  • No income (rent) was received from the house during the short time over which house prices fell.
  • Your friend will not declare bankruptcy, he will always pay off his debts.



Question 383  Merton model of corporate debt, real option, option

In the Merton model of corporate debt, buying a levered company's debt is equivalent to buying the company's assets and:



Question 395  real option, option

The cheapest mobile phones available tend to be those that are 'locked' into a cell phone operator's network. Locked phones can not be used with other cell phone operators' networks.

Locked mobile phones are cheaper than unlocked phones because the locked-in network operator helps create a monopoly by:



Question 682  open interest, trade volume, future

Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.

1. Alice buys a future from Bob.

2. Chris buys a future from Delta.

3. Bob buys a future from Chris.

These were the only trades made in this equity index future. What was the trading volume and what is the open interest?



Question 755  bond pricing, capital raising

A firm wishes to raise $50 million now. They will issue 7% pa semi-annual coupon bonds that will mature in 6 years and have a face value of $100 each. Bond yields are 5% pa, given as an APR compounding every 6 months, and the yield curve is flat.

How many bonds should the firm issue?



Question 886  foreign exchange rate, no explanation

A British man wants to calculate how many British pounds (GBP) he needs to buy a 1 million euro (EUR) apartment in Germany. The exchange rate is 1.42 USD per GBP and 1.23 USD per EUR. What is the EUR 1 million equivalent to in GBP?