Fight Finance

(a) Extrapolation of past trends to estimate future revenues or costs.

(b) Using a constant or trending 'percent of sales' method to forecast future costs.

(c) Use futures (derivative) prices, if available, to forecast prices which helps calculate revenues.

(d) Use forecast GDP growth rates published by the statistics bureau to estimate future revenue growth.

(e) Assume that markets are efficient and use the random walk hypothesis to substitute a random value for revenue.

(a) A firm's quick ratio will always be equal to or less than its current ratio.

(b) A firm will have positive net working capital if it has a current ratio that's greater than one.

(c) A firm's gross margin will be greater than or equal to its operating margin, which will be greater than or equal to its net profit margin.

(d) A firm's fixed asset turnover will be less than or equal to asset turnover.

(e) A firm's debt to equity ratio will always be greater than or equal to its debt to assets ratio.

(a) ##V_0=\dfrac{C_t}{(1+r)^t} ##

(b) ##V_0=\dfrac{C_1}{r}.\left(1-\dfrac{1}{(1+r)^T} \right)= \sum\limits_{t=1}^T \left( \dfrac{C_t}{(1+r)^t} \right) ##

(c) ##V_0=\dfrac{C_1}{r-g}.\left(1-\left(\dfrac{1+g}{1+r}\right)^T \right)= \sum\limits_{t=1}^T \left( \dfrac{C_t.(1+g)^t}{(1+r)^t} \right) ##

(d) ##V_0=\dfrac{C_1}{r} = \sum\limits_{t=1}^\infty \left( \dfrac{C_t}{(1+r)^t} \right) ##

(e) ##V_0=\dfrac{C_1}{r-g} = \sum\limits_{t=1}^\infty \left( \dfrac{C_t.(1+g)^t}{(1+r)^t} \right) ##

(a) The arithmetic average of variable X is represented by ##\bar{X}##.

(b) The standard deviation of variable X is represented by ##\sigma_X##.

(c) The variance of variable X is represented by ##\sigma_X^2##.

(d) The covariance between variables X and Y is represented by ##\sigma_{X,Y}^2##.

(e) The correlation between variables X and Y is represented by ##\rho_{X,Y}##.

(a) -76.92%,   333.33%

(b) -70%,   333.33%

(c) -70%, 233.33%

(d) -57.14%,   233.33%

(e) 233.33%,   -70%

(a) 30% pa

(b) 26.236426% pa

(c) 10.254219% pa

(d) 10.25% pa

(e) 10% pa

(a) You have a debt asset.

(b) The bank sold you its promise to pay back interest and principal payments.

(c) The bank is exposed to your credit risk, it’s afraid that you’ll default on your debt.

(d) The interest income you’re paid is taxable income for you.

(e) The interest expense that the bank pays is tax-deductible for the bank.

(a) Historical capital return last year was negative ##\left( \dfrac{P_0 - P_{-1}}{P_{-1}} < 0 \right)##.

(b) Historical dividend yield last year was negative ##\left( \dfrac{C_0}{P_{-1}} < 0 \right)##.

(c) Expected future capital return next year is positive ##\left( \dfrac{P_1 - P_0}{P_0} > 0 \right)##.

(d) Expected future dividend yield next year is positive ##\left( \dfrac{C_1}{P_0} > 0 \right)##.

(e) Expected future total return next year is positive ##\left( \dfrac{P_1 - P_0 + C_1}{P_0} > 0 \right)##.

(a) 4.5% for Common Equity Tier 1 (CET1).

(b) 2% for Other Tier 1.

(c) 2% for Tier 2.

(d) 8% for overall regulatory capital.

(a) The call option price is expected to be $654.757851.

(b) The stock investment value used for hedging should be $5506.488143, partly funded by $4845.505265 in debt.

(c) The interest expense on the borrowing from the previous day will be $0.663813.

(d) The gain on the stock is zero and the gain on the short call option is $6.225027.

(e) The net gain is $5.561214.