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Question 47  implicit interest rate in wholesale credit

A wholesale horticulture nursery offers credit to its customers.

Customers are given 60 days to pay for their goods, but if they pay immediately they will get a 3% discount.

What is the effective interest rate implicit in the discount being offered? Assume 365 days in a year and that all customers pay either immediately or on the 60th day. All rates given below are effective annual rates.



Question 292  standard deviation, risk

Find the sample standard deviation of returns using the data in the table:

Stock Returns
Year Return pa  
2008 0.3
2009 0.02
2010 -0.2
2011 0.4
 

The returns above and standard deviations below are given in decimal form.



Question 435  option, no explanation

Will the price of a call option on equity or if the standard deviation of returns (risk) of the underlying shares becomes higher?


Question 436  option, no explanation

Will the price of an out-of-the-money put option on equity or if the standard deviation of returns (risk) of the underlying shares becomes higher?


Question 440  option, no explanation

Two put options are exactly the same, but one has a low and the other has a high exercise price. Which option would you expect to have the higher price, the option with the or exercise price, or should they have the price?


Question 491  capital budgeting, opportunity cost, sunk cost

A man is thinking about taking a day off from his casual painting job to relax.

He just woke up early in the morning and he's about to call his boss to say that he won't be coming in to work.

But he's thinking about the hours that he could work today (in the future) which are:



Question 642  future, no explanation

Which of the below formulas gives the payoff at maturity ##(f_T)## from being short a future? Let the underlying asset price at maturity be ##S_T## and the locked-in futures price be ##K_T##.



Question 743  price gains and returns over time, no explanation

How many years will it take for an asset's price to triple (increase from say $1 to $3) if it grows by 5% pa?



Question 825  future, hedging, tailing the hedge, speculation, no explanation

An equity index fund manager controls a USD500 million diversified equity portfolio with a beta of 0.9. The equity manager expects a significant rally in equity prices next year. The market does not think that this will happen. If the fund manager wishes to increase his portfolio beta to 1.5, how many S&P500 futures should he buy?

The US market equity index is the S&P500. One year CME futures on the S&P500 currently trade at 2,155 points and the spot price is 2,180 points. Each point is worth $250.

The number of one year S&P500 futures contracts that the fund manager should buy is:



Question 843  monetary policy, institution, no explanation

The Australian central bank implements monetary policy by directly controlling which interest rate?