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 49 inflation, real and nominal returns and cash flows, APR, effective rate
In Australia, nominal yields on semi-annual coupon paying Government Bonds with 2 years until maturity are currently 2.83% pa.
The inflation rate is currently 2.2% pa, given as an APR compounding per quarter. The inflation rate is not expected to change over the next 2 years.
What is the real yield on these bonds, given as an APR compounding every 6 months?
An investor bought two fixed-coupon bonds issued by the same company, a zero-coupon bond and a 7% pa semi-annual coupon bond. Both bonds have a face value of $1,000, mature in 10 years, and had a yield at the time of purchase of 8% pa.
A few years later, yields fell to 6% pa. Which of the following statements is correct? Note that a capital gain is an increase in price.
One of the reasons why firms may not begin projects with relatively small positive net present values (NPV's) is because they wish to maximise the value of their:
A trader sells a one year futures contract on crude oil. The contract is for the delivery of 1,000 barrels. The current futures price is $38.94 per barrel. The initial margin is $3,410 per contract, and the maintenance margin is $3,100 per contract.
What is the smallest price change that would lead to a margin call for the seller?
Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.
1. Alice buys a future from Bob.
2. Chris buys a future from Delta.
3. Alice buys a future from Chris.
These were the only trades made in this equity index future. What was the trading volume and what is the open interest?
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Note that a fair gamble is a bet that has an expected value of zero, such as paying $0.50 to win $1 in a coin flip with heads or nothing if it lands tails. Fairly priced insurance is when the expected present value of the insurance premiums is equal to the expected loss from the disaster that the insurance protects against, such as the cost of rebuilding a home after a catastrophic fire.
Which of the following statements is NOT correct?
Question 797 option, Black-Scholes-Merton option pricing, option delta, no explanation
Which of the following quantities from the Black-Scholes-Merton option pricing formula gives the risk-neutral probability that a European put option will be exercised?
A graph of assets’ expected returns ##(\mu)## versus standard deviations ##(\sigma)## is given in the below diagram.
Each letter corresponds to a separate coloured area. The portfolios at the boundary of the areas, on the black lines, are excluded from each area. Assume that all assets represented in this graph are fairly priced, and that all risky assets can be short-sold.
Which of the following statements about this graph and Markowitz portfolio theory is NOT correct?
A stock has an expected return of 10% pa and you're 90% sure that over the next year, the return will be between -15% and 35%. The stock's returns are normally distributed. Note that the Z-statistic corresponding to a one-tail:
- 90% normal probability density function is 1.282.
- 95% normal probability density function is 1.645.
- 97.5% normal probability density function is 1.960.
What is the stock’s standard deviation of returns in percentage points per annum (pp pa)?