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?

A three year bond has a fixed coupon rate of 12% pa, paid semi-annually. The bond's yield is currently 6% pa. The face value is $100. What is its price?

There are a number of ways that assets can be depreciated. Generally the government's tax office stipulates a certain method.

But if it didn't, what would be the ideal way to depreciate an asset from the perspective of a businesses owner?

Your friend overheard that you need some cash and asks if you would like to borrow some money. She can lend you $**5,000** now (t=0), and in return she wants you to pay her back $1,000 in two years (t=2) and every year after that for the next 5 years, so there will be **6** payments of $**1,000** from t=**2** to t=**7** inclusive.

What is the net present value (NPV) of borrowing from your friend?

Assume that banks loan funds at interest rates of **10**% pa, given as an effective annual rate.

An asset's total expected return over the next year is given by:

###r_\text{total} = \dfrac{c_1+p_1-p_0}{p_0} ###

Where ##p_0## is the current price, ##c_1## is the expected income in one year and ##p_1## is the expected price in one year. The total return can be split into the income return and the capital return.

Which of the following is the expected **capital** return?

Which one of the below option and futures contracts gives the possibility of potentially unlimited gains?

**Question 795** option, Black-Scholes-Merton option pricing, option delta, no explanation

Which of the following quantities from the Black-Scholes-Merton option pricing formula gives the **Delta** of a European **put** option?

Short selling is a way to make money from falling prices. In what order must the following steps be completed to short-sell an asset? Let Tom, Dick and Harry be traders in the share market.

- Step P: Purchase the asset from Harry.
- Step G: Give the asset to Tom.
- Step W: Wait and hope that the asset price falls.
- Step B: Borrow the asset from Tom.
- Step S: Sell the asset to Dick.

Select the statement with the correct order of steps.

**Question 832** option, Black-Scholes-Merton option pricing, no explanation

A **12** month European-style **call** option with a strike price of $**11** is written on a dividend paying stock currently trading at $**10**. The dividend is paid annually and the next dividend is expected to be $**0.40**, paid in **9** months. The risk-free interest rate is **5**% pa continuously compounded and the standard deviation of the stock’s continuously compounded returns is **30** percentage points pa. The stock's continuously compounded returns are normally distributed. Using the Black-Scholes-Merton option valuation model, determine which of the following statements is **NOT** correct.

A **90** day bank bill has a face value of $**100,000**.

Investor A bought the bill when it was first issued at a simple yield to maturity of **3**% pa and sold it **20** days later to Investor B who expected to earn a simple yield to maturity of **5**% pa. Investor B held it until maturity.

Which of the following statements is **NOT** correct?