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Question 42  interest only loan

You just signed up for a 30 year interest-only mortgage with monthly payments of $3,000 per month. The interest rate is 6% pa which is not expected to change.

How much did you borrow? After 15 years, just after the 180th payment at that time, how much will be owing on the mortgage? The interest rate is still 6% and is not expected to change. Remember that the mortgage is interest-only and that mortgage payments are paid in arrears (at the end of the month).



Question 106  CAPM

A fairly priced stock has an expected return of 15% pa. Treasury bonds yield 5% pa and the market portfolio's expected return is 10% pa. What is the beta of the stock?



Question 237  WACC, Miller and Modigliani, interest tax shield

Which of the following discount rates should be the highest for a levered company? Ignore the costs of financial distress.



Question 249  equivalent annual cash flow, effective rate conversion

Details of two different types of desserts or edible treats are given below:

  • High-sugar treats like candy, chocolate and ice cream make a person very happy. High sugar treats are cheap at only $2 per day.
  • Low-sugar treats like nuts, cheese and fruit make a person equally happy if these foods are of high quality. Low sugar treats are more expensive at $4 per day.

The advantage of low-sugar treats is that a person only needs to pay the dentist $2,000 for fillings and root canal therapy once every 15 years. Whereas with high-sugar treats, that treatment needs to be done every 5 years.

The real discount rate is 10%, given as an effective annual rate. Assume that there are 365 days in every year and that all cash flows are real. The inflation rate is 3% given as an effective annual rate.

Find the equivalent annual cash flow (EAC) of the high-sugar treats and low-sugar treats, including dental costs. The below choices are listed in that order.

Ignore the pain of dental therapy, personal preferences and other factors.



Question 319  foreign exchange rate, monetary policy, American and European terms

Investors expect the Reserve Bank of Australia (RBA) to keep the policy rate steady at their next meeting.

Then unexpectedly, the RBA announce that they will increase the policy rate by 25 basis points due to fears that the economy is growing too fast and that inflation will be above their target rate of 2 to 3 per cent.

What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar is likely to:



Question 637  option, option payoff at maturity, no explanation

Which of the below formulas gives the payoff ##(f)## at maturity ##(T)## from being short a call option? Let the underlying asset price at maturity be ##S_T## and the exercise price be ##X_T##.



Question 724  return distribution, mean and median returns

If a stock's future expected continuously compounded annual returns are normally distributed, what will be bigger, the stock's or continuously compounded annual return? Or would you expect them to be ?


Question 764  bond pricing, no explanation

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.



Question 867  limited liability, business structure

Which one of the following businesses is likely to be a public company in Australia, judging by its name?



Question 870  income and capital returns

An Apple (NASDAQ:AAPL) stock was purchased by an investor for $120 and one year later was sold for $150. A dividend of $4 was also collected at the end of the year just before the stock was sold.

Which of the following statements about the stock investment is NOT correct? Ignore taxes.

Over the year, the investor made a:


.