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 295** inflation, real and nominal returns and cash flows, NPV

When valuing assets using discounted cash flow (net present value) methods, it is important to consider inflation. To properly deal with inflation:

(I) Discount nominal cash flows by nominal discount rates.

(II) Discount nominal cash flows by real discount rates.

(III) Discount real cash flows by nominal discount rates.

(IV) Discount real cash flows by real discount rates.

Which of the above statements is or are correct?

**Question 320** foreign exchange rate, monetary policy, American and European terms

Investors expect the Reserve Bank of Australia (RBA) to decrease the overnight cash rate at their next meeting.

Then unexpectedly, the RBA announce that they will keep the policy rate unchanged.

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

The current gold price is $**700**, gold storage costs are **2**% pa and the risk free rate is **10**% pa, both with **continuous compounding**.

What should be the **3** year gold futures price?

The efficient markets hypothesis (EMH) and no-arbitrage pricing theory are most closely related to which of the following concepts?

An effective **semi-annual** return of 5% ##(r_\text{eff 6mth})## is equivalent to an effective **annual** return ##(r_\text{eff annual})## of:

The market's expected total return is **10**% pa and the risk free rate is **5**% pa, both given as effective annual rates.

A stock has a beta of **0.5**.

In the last 5 minutes, the federal government unexpectedly raised taxes. Over this time the share market fell by **3**%. The risk free rate was unchanged.

What do you think was the stock's historical return over the last 5 minutes, given as an effective 5 minute rate?

**Question 831** option, American option, no explanation

Which of the following statements about **American**-style options is **NOT** correct? American-style: