A two year Government bond has a face value of $100, a yield of 0.5% and a fixed coupon rate of 0.5%, paid semi-annually. What is its price?
| Portfolio Details | ||||||
| Stock | Expected return |
Standard deviation |
Correlation | Dollars invested |
||
| A | 0.1 | 0.4 | 0.5 | 60 | ||
| B | 0.2 | 0.6 | 140 | |||
What is the expected return of the above portfolio?
You operate a cattle farm that supplies hamburger meat to the big fast food chains. You buy a lot of grain to feed your cattle, and you sell the fully grown cattle on the livestock market.
You're afraid of adverse movements in grain and livestock prices. What options should you buy to hedge your exposures in the grain and cattle livestock markets?
Select the most correct response:
Currently, a mining company has a share price of $6 and pays constant annual dividends of $0.50. The next dividend will be paid in 1 year. Suddenly and unexpectedly the mining company announces that due to higher than expected profits, all of these windfall profits will be paid as a special dividend of $0.30 in 1 year.
If investors believe that the windfall profits and dividend is a one-off event, what will be the new share price? If investors believe that the additional dividend is actually permanent and will continue to be paid, what will be the new share price? Assume that the required return on equity is unchanged. Choose from the following, where the first share price includes the one-off increase in earnings and dividends for the first year only ##(P_\text{0 one-off})## , and the second assumes that the increase is permanent ##(P_\text{0 permanent})##:
Note: When a firm makes excess profits they sometimes pay them out as special dividends. Special dividends are just like ordinary dividends but they are one-off and investors do not expect them to continue, unlike ordinary dividends which are expected to persist.
Interest expense (IntExp) is an important part of a company's income statement (or 'profit and loss' or 'statement of financial performance').
How does an accountant calculate the annual interest expense of a fixed-coupon bond that has a liquid secondary market? Select the most correct answer:
Annual interest expense is equal to:
In February a company sold one December 40,000 pound (about 18 metric tons) lean hog futures contract. It closed out its position in May.
The spot price was $0.68 per pound in February. The December futures price was $0.70 per pound when the trader entered into the contract in February, $0.60 when he closed out his position in May, and $0.55 when the contract matured in December.
What was the total profit?
A trader sells one crude oil European style put option contract on the CME expiring in one year with an exercise price of $44 per barrel for a price of $6.64. The crude oil spot price is $40.33. If the trader doesn’t close out her contract before maturity, then at maturity she will have the:
Question 744 income and capital returns, real and nominal returns and cash flows, inflation
If someone says "my shares rose by 10% last year", what do you assume that they mean? The effective annual:
Question 875 omitted variable bias, systematic and idiosyncratic risk, CAPM, single factor model, two factor model
The 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 Solar electricity generator company and a Beach bathing chair renting company are influenced by two factors, the market portfolio return and cloud cover in the sky. When it's sunny and not cloudy, both the Solar and Beach companies’ stock prices do well. When there’s dense cloud cover and no sun, both do poorly. Assume that cloud coverage risk is a systematic risk that cannot be diversified and that cloud cover 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:
Which of the following statements about an asset’s standard deviation of returns is NOT correct? All other things remaining equal, the higher the asset’s standard deviation of returns: