# Fight Finance

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A stock is expected to pay the following dividends:

 Cash Flows of a Stock Time (yrs) 0 1 2 3 4 ... Dividend ($) 0.00 1.00 1.05 1.10 1.15 ... After year 4, the annual dividend will grow in perpetuity at 5% pa, so; • the dividend at t=5 will be$1.15(1+0.05),
• the dividend at t=6 will be $1.15(1+0.05)^2, and so on. The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates. What is the current price of the stock? Diversification is achieved by investing in a large amount of stocks. What type of risk is reduced by diversification? The standard deviation and variance of a stock's annual returns are calculated over a number of years. The units of the returns are percent per annum $(\% pa)$. What are the units of the standard deviation $(\sigma)$ and variance $(\sigma^2)$ of returns respectively? Hint: Visit Wikipedia to understand the difference between percentage points $(\text{pp})$ and percent $(\%)$. A company conducts a 4 for 3 stock split. What is the percentage change in the stock price and the number of shares outstanding? The answers are given in the same order. Which of the below formulas gives the payoff $(f)$ at maturity $(T)$ from being long a put option? Let the underlying asset price at maturity be $S_T$ and the exercise price be $X_T$. Which of the following statements is NOT correct? Lenders: A firm wishes to raise$50 million now. They will issue 5% pa semi-annual coupon bonds that will mature in 3 years and have a face value of $100 each. Bond yields are 6% pa, given as an APR compounding every 6 months, and the yield curve is flat. How many bonds should the firm issue? A 4.5% fixed coupon Australian Government bond was issued at par in mid-April 2009. Coupons are paid semi-annually in arrears in mid-April and mid-October each year. The face value is$1,000. The bond will mature in mid-April 2020, so the bond had an original tenor of 11 years.

Today is mid-September 2015 and similar bonds now yield 1.9% pa.

What is the bond's new price? Note: there are 10 semi-annual coupon payments remaining from now (mid-September 2015) until maturity (mid-April 2020); both yields are given as APR's compounding semi-annually; assume that the yield curve was flat before the change in yields, and remained flat afterwards as well.

A Brazilian lady wishes to convert 1 million Brazilian Real (BRL) into Chinese Renminbi (RMB, also called the Yuan or CNY). The exchange rate is 3.42 BRL per USD and 6.27 RMB per USD. How much is the BRL 1 million worth in RMB?

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: