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Question 36  DDM, perpetuity with growth

A stock pays annual dividends which are expected to continue forever. It just paid a dividend of $10. The growth rate in the dividend is 2% pa. You estimate that the stock's required return is 10% pa. Both the discount rate and growth rate are given as effective annual rates. Using the dividend discount model, what will be the share price?



Question 138  bond pricing, premium par and discount bonds

Bonds A and B are issued by the same Australian company. Both bonds yield 7% pa, and they have the same face value ($100), maturity, seniority, and payment frequency.

The only difference is that bond A pays coupons of 10% pa and bond B pays coupons of 5% pa. Which of the following statements is true about the bonds' prices?



Question 388  real option, option

A moped is a bicycle with pedals and a little motor that can be switched on to assist the rider. Mopeds are useful for quick transport using the motor, and for physical exercise when using the pedals unassisted. This offers the rider:



Question 623  market efficiency

The efficient markets hypothesis (EMH) and no-arbitrage pricing theory are most closely related to which of the following concepts?



Question 654  future, forward

Which of the following statements about futures and forward contracts is NOT correct?



Question 711  continuously compounding rate, continuously compounding rate conversion

A continuously compounded semi-annual return of 5% ##(r_\text{cc 6mth})## is equivalent to a continuously compounded annual return ##(r_\text{cc annual})## of:



Question 825  future, hedging, tailing the hedge, speculation, no explanation

An equity index fund manager controls a USD500 million diversified equity portfolio with a beta of 0.9. The equity manager expects a significant rally in equity prices next year. The market does not think that this will happen. If the fund manager wishes to increase his portfolio beta to 1.5, how many S&P500 futures should he buy?

The US market equity index is the S&P500. One year CME futures on the S&P500 currently trade at 2,155 points and the spot price is 2,180 points. Each point is worth $250.

The number of one year S&P500 futures contracts that the fund manager should buy is:



Question 923  omitted variable bias, CAPM, single factor model, single index model, no explanation

Capital Asset Pricing Model (CAPM) and the Single Index Model (SIM) are single factor models whose only risk factor is the market portfolio’s return. Say a Taxi company and an Umbrella company are influenced by two factors, the market portfolio return and rainfall. When it rains, both the Taxi and Umbrella companies’ stock prices do well. When there’s no rain, both do poorly. Assume that rainfall risk is a systematic risk that cannot be diversified and that rainfall has zero correlation with the market portfolio’s returns.

Which of the following statements about these two stocks is NOT correct?

The CAPM and SIM:



Question 954  option, at the money option

If a put option is at-the-money, then the spot price (##S_0##) is than, than or to the put option's strike price (##K_T##)?


Question 979  balance of payments, current account, no explanation

This question is about the Balance of Payments.

Assume that all foreign and domestic assets are either debt which makes interest income or equity which makes dividend income, and vice versa for liabilities which cost interest and dividend payments, respectively.

Which of the following statements is NOT correct?