The required return of a project is 10%, given as an effective annual rate. Assume that the cash flows shown in the table are paid all at once at the given point in time.
What is the Profitability Index (PI) of the project?
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -100 |
| 1 | 0 |
| 2 | 121 |
Government bonds currently have a return of 5%. A stock has a beta of 2 and the market return is 7%. What is the expected return of the stock?
You want to buy an apartment worth $300,000. You have saved a deposit of $60,000.
The bank has agreed to lend you $240,000 as an interest only mortgage loan with a term of 30 years. The interest rate is 6% pa and is not expected to change. What will be your monthly payments?
This annuity formula ##\dfrac{C_1}{r}\left(1-\dfrac{1}{(1+r)^3} \right)## is equivalent to which of the following formulas? Note the 3.
In the below formulas, ##C_t## is a cash flow at time t. All of the cash flows are equal, but paid at different times.
In 2014 the median starting salaries of male and female Australian bachelor degree accounting graduates aged less than 25 years in their first full-time industry job was $50,000 before tax, according to Graduate Careers Australia. See page 9 of this report. Personal income tax rates published by the Australian Tax Office are reproduced for the 2014-2015 financial year in the table below.
| Taxable income | Tax on this income |
|---|---|
| 0 – $18,200 | Nil |
| $18,201 – $37,000 | 19c for each $1 over $18,200 |
| $37,001 – $80,000 | $3,572 plus 32.5c for each $1 over $37,000 |
| $80,001 – $180,000 | $17,547 plus 37c for each $1 over $80,000 |
| $180,001 and over | $54,547 plus 45c for each $1 over $180,000 |
The above rates do not include the Medicare levy of 2%. Exclude the Medicare levy from your calculations
How much personal income tax would you have to pay per year if you earned $50,000 per annum before-tax?
Question 662 APR, effective rate, effective rate conversion, no explanation
Which of the following interest rate labels does NOT make sense?
Question 793 option, hedging, delta hedging, gamma hedging, gamma, Black-Scholes-Merton option pricing
A bank buys 1000 European put options on a $10 non-dividend paying stock at a strike of $12. The bank wishes to hedge this exposure. The bank can trade the underlying stocks and European call options with a strike price of 7 on the same stock with the same maturity. Details of the call and put options are given in the table below. Each call and put option is on a single stock.
| European Options on a Non-dividend Paying Stock | |||
| Description | Symbol | Put Values | Call Values |
| Spot price ($) | ##S_0## | 10 | 10 |
| Strike price ($) | ##K_T## | 12 | 7 |
| Risk free cont. comp. rate (pa) | ##r## | 0.05 | 0.05 |
| Standard deviation of the stock's cont. comp. returns (pa) | ##\sigma## | 0.4 | 0.4 |
| Option maturity (years) | ##T## | 1 | 1 |
| Option price ($) | ##p_0## or ##c_0## | 2.495350486 | 3.601466138 |
| ##N[d_1]## | ##\partial c/\partial S## | 0.888138405 | |
| ##N[d_2]## | ##N[d_2]## | 0.792946442 | |
| ##-N[-d_1]## | ##\partial p/\partial S## | -0.552034778 | |
| ##N[-d_2]## | ##N[-d_2]## | 0.207053558 | |
| Gamma | ##\Gamma = \partial^2 c/\partial S^2## or ##\partial^2 p/\partial S^2## | 0.098885989 | 0.047577422 |
| Theta | ##\Theta = \partial c/\partial T## or ##\partial p/\partial T## | 0.348152078 | 0.672379961 |
Which of the following statements is NOT correct?
On 1 February 2016 you were told that your refinery company will need to purchase oil on 1 July 2016. You were afraid of the oil price rising between now and then so you bought some August 2016 futures contracts on 1 February 2016 to hedge against changes in the oil price. On 1 February 2016 the oil price was $40 and the August 2016 futures price was $43.
It's now 1 July 2016 and oil price is $45 and the August 2016 futures price is $46. You bought the spot oil and closed out your futures position on 1 July 2016.
What was the effective price paid for the oil, taking into account basis risk? All spot and futures oil prices quoted above and below are per barrel.
Which of the following is NOT the Australian central bank’s responsibility?
What is the Cash Conversion Cycle for a firm with a:
- Payables period of 1 day;
- Inventory period of 50 days; and
- Receivables period of 30 days?
All answer options are in days: