Fight Finance

(a) $1,997.78 per month in the first year, with 3% annual increases.

(b) $2,083.33 per month in the first year, with 3% annual increases.

(c) $2,157.60 per month in the first year, with 3% annual increases.

(d) $2,171.49 per month in the first year, with 3% annual increases.

(e) $3,333.33 per month in the first year, with 0% annual increases.

(a) Personal tax of $6.43 and corporate tax of $45.

(b) Personal tax of $15 and corporate tax of $30.

(c) Personal tax of $16.5 and corporate tax of $45.

(d) Personal tax of $31.5 and corporate tax of $30.

(e) Personal tax of $45 and corporate tax of $0.

(a) 45.1%

(b) 30.95%

(c) 13.96%

(d) 5.33%

(e) 2.41%

(a) The NPV is negative $1m.

(b) The IRR is 9.09% pa, less than the 10% cost of capital.

(c) The payback period is infinite, the project will never pay itself off.

(d) The project should be rejected.

(e) If the project is accepted then the market value of the firm's assets will fall by $1m.

(a) Because bonds are higher risk investments than shares.

(b) Because issuers must pay bond holders or face bankruptcy, while payments to shareholders are discretionary.

(c) Because bond holders are paid last in the event of bankruptcy, while shareholders are paid first.

(d) Because bonds always pay higher returns than shares.

(e) Because bonds are generally more liquid than shares.

(a) The futures price quote ##(F_T)## is 'fair'. It's neither over- nor under-priced to the long or short trader.

(b) The futures price quote ##(F_T)## equals the expected underlying asset price at maturity.

(c) The futures price quote ##(F_0)## is initially zero.

(d) The value of the future ##(V_0)## is initially zero to both the long and short trader.

(e) If the value of the future ##(V_0)## rises for the long trader, it must have fallen for the short trader, and vice versa.

(a) Alice's net position is short 3 contracts.

(b) Bob's net position is short 2 contracts.

(c) Chris's net position is long 3 contracts.

(d) Delta's net position is short 3 contracts.

(e) Open interest is 5 contracts and daily trading volume is 10 contracts.

If future required returns rise, and future expected cash flows remain the same, then prices will , or remain the ?

(a) The option’s expected future continuously compounded returns are always more than or equal to the underlying stock’s expected future continuously compounded returns.

(b) The option’s standard deviation of dollar price changes is always less than or equal to the underlying stock’s standard deviation of dollar price changes.

(c) The option’s standard deviation of continuously compounded returns are always less than or equal to the underlying stock’s standard deviation of continuously compounded returns.

(d) As time elapses and the maturity date of an option approaches, its price will fall, all other things remaining equal.

(e) If the underlying stock’s price rises by $0.01, the call option’s price will rise by less than $0.01 and the put option’s price will fall by less than $0.01.

(a) Home-production such as Grandma babysitting her grand-children for free.

(b) Production in the under-ground economy such as work paid for in cash to evade the tax authorities.

(c) Production in the wild, such as when kangaroos multiply in the bush.

(d) Goods produced and exchanged in the barter economy that are not reported to the tax authorities.

(e) Inventory build-up such as goods produced in a factory that were sold to a wholesaler but have not yet been sold to a retailer or consumer.