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Question 4  DDM

For a price of $13, Carla will sell you a share which will pay a dividend of $1 in one year and every year after that forever. The required return of the stock is 10% pa.

Would you like to Carla's share or politely ?


Question 163  bond pricing, premium par and discount bonds

Bonds X and Y are issued by different companies, but they both pay a semi-annual coupon of 10% pa and they have the same face value ($100), maturity (3 years) and yield (10%) as each other.

Which of the following statements is true?



Question 255  bond pricing

In these tough economic times, central banks around the world have cut interest rates so low that they are practically zero. In some countries, government bond yields are also very close to zero.

A three year government bond with a face value of $100 and a coupon rate of 2% pa paid semi-annually was just issued at a yield of 0%. What is the price of the bond?



Question 267  term structure of interest rates

A European company just issued two bonds, a

  • 3 year zero coupon bond at a yield of 6% pa, and a
  • 4 year zero coupon bond at a yield of 6.5% pa.

What is the company's forward rate over the fourth year (from t=3 to t=4)? Give your answer as an effective annual rate, which is how the above bond yields are quoted.



Question 710  continuously compounding rate, continuously compounding rate conversion

A continuously compounded monthly return of 1% ##(r_\text{cc monthly})## is equivalent to a continuously compounded annual return ##(r_\text{cc annual})## of:



Question 797  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 risk-neutral probability that a European put option will be exercised?



Question 874  utility, return distribution, log-normal distribution, arithmetic and geometric averages

Who was the first theorist to endorse the maximisiation of the geometric average gross discrete return for investors (not gamblers) since it gave a "...portfolio that has a greater probability of being as valuable or more valuable than any other significantly different portfolio at the end of n years, n being large"?

(a) Daniel Bernoulli.



Question 948  VaR, expected shortfall

Below is a historical sample of returns on the S&P500 capital index.

S&P500 Capital Index Daily Returns
Ranked from Best to Worst
10,000 trading days from 4th August 1977 to
24 March 2017 based on closing prices.
Rank Date
(DD-MM-YY)
Continuously compounded
daily return (% per day)
1 21-10-87 9.23
2 08-03-83 8.97
3 13-11-08 8.3
4 30-09-08 8.09
5 28-10-08 8.01
6 29-10-87 7.28
9980 11-12-08 -5.51
9981 22-10-08 -5.51
9982 08-08-11 -5.54
9983 22-09-08 -5.64
9984 11-09-86 -5.69
9985 30-11-87 -5.88
9986 14-04-00 -5.99
9987 07-10-98 -6.06
9988 08-01-88 -6.51
9989 27-10-97 -6.55
9990 13-10-89 -6.62
9991 15-10-08 -6.71
9992 29-09-08 -6.85
9993 07-10-08 -6.91
9994 14-11-08 -7.64
9995 01-12-08 -7.79
9996 29-10-08 -8.05
9997 26-10-87 -8.4
9998 31-08-98 -8.45
9999 09-10-08 -12.9
10000 19-10-87 -23.36
 
Mean of all 10,000: 0.0354
Sample standard deviation of all 10,000: 1.2062
Sources: Bloomberg and S&P.
 

 

Assume that the one-tail Z-statistic corresponding to a probability of 99.9% is exactly 3.09. Which of the following statements is NOT correct? Based on the historical data, the 99.9% daily:



Question 971  foreign exchange rate, no explanation

Suppose the current Australian exchange rate is 0.8 USD per AUD.

If you think that the AUD will appreciate against the USD, contrary to the rest of the market, how could you profit? Right now you should:



Question 989  PE ratio, Multiples valuation, leverage, accounting ratio

A firm has 20 million shares, earnings (or net income) of $100 million per annum and a 60% debt-to-equity ratio where both the debt and asset values are market values rather than book values. Similar firms have a PE ratio of 12.

Which of the below statements is NOT correct based on a PE multiples valuation?