Fight Finance

(a) Negative since the NPV is negative.

(b) Zero since the project's internal rate of return is less than the required return.

(c) 15 years.

(d) 18 years.

(e) Infinite, since the project will never pay itself off.

(a) If stock A's return increases, stock B's return is also expected to increase.

(b) If stock A's return decreases, stock B's return is also expected to decrease.

(c) If stock A and B were combined in a portfolio, there would be no diversification at all since they are positively correlated.

(d) Stock A and B's returns have positive covariance.

(e) a and b.

(a) 420.00

(b) 463.05

(c) 463.53

(d) 486.20

(e) 510.51

(a) 0, so ##V_0=\dfrac{C_5}{r}##

(b) 1, so ##V_1=\dfrac{C_5}{r}##

(c) 4, so ##V_4=\dfrac{C_5}{r}##

(d) 5, so ##V_5=\dfrac{C_5}{r}##

(e) 6, so ##V_6=\dfrac{C_5}{r}##

(a) Obligation to buy the underlying oil at $44 per barrel.

(b) Right to buy the underlying oil at $44 per barrel if she wants.

(c) Right to sell the underlying oil at $44 per barrel if she wants.

(d) Obligation to buy the underlying oil at $44 per barrel if the counterparty chooses to sell it.

(e) Obligation to sell the underlying oil at $44 per barrel if the counterparty chooses to buy it.

(a) ##P_0 (1+g)^2##

(b) ##P_0 (1+g)^2 - C_1 - C_2##

(c) ##(P_0 (1+r)^1 - C_1 ) (1+g)^1##

(d) ##(P_0 (1+r)^1 - C_1 ) (1+r)^1 - C_2##

(e) ##(P_0 (1+g)^1 ) (1+r)^1 - C_2##

(a) If a company's dividend (and profit and free cash flow to equity) rises, its share price will rise.

(b) If a fixed coupon bond's yield to maturity rises, its price will rise.

(c) If a residential property's rent revenue rises, its price will rise.

(d) If a patent's royalty revenue rises, its price will also rise.

(e) If a software asset's licensing revenue rises, its price will also rise.

(a) Basis risk makes hedges more risky.

(b) Basis risk can only lead to worse than expected effective dollar prices.

(c) Basis risk only occurs when the future is closed out early, before it matures.

(d) ‘The basis’ is defined as the underlying spot price less the futures price quote ##(S_t - F_{t,T})##.

(e) The futures price of oil will tend to be higher than the spot price due to storage costs, so the basis will tend to be positive for hedgers who long futures contracts.

(a) Alice buys Alan’s shares using their share brokers and the securities exchange.

(b) Bell buys Bob’s house using his real estate agent.

(c) Carla lends Carlos money at an interest rate of 10% pa for 3 years.

(d) Dora lends money to her bank at 2% pa and the bank lends the funds to David at 5% pa.

(e) Eve buys Ernie’s government bond using their brokers and the securities exchange.

(a) Sole trader turns into a partnership.

(b) Partnership turns into a private company.

(c) Private company turns into a public company.

(d) Public company turns into a private company.

(e) Private company turns into a sole trader.