Fight Finance

(a) The internal rate of return (IRR) of buying a fairly priced bond is equal to the bond's yield.

(b) The Present Value of a fairly priced bond's coupons and face value is equal to its price.

(c) If a fairly priced bond's required return rises, its price will fall.

(d) Fairly priced premium bonds' yields are less than their coupon rates, prices are more than their face values, and the NPV of buying them is therefore positive.

(e) The NPV of buying a fairly priced bond is zero.

(a) Stock A has less systematic risk than stock B, so stock A's return should be less than stock B's.

(b) Stock B has the same systematic risk as the market, so its return should be the same as the market's.

(c) Stock B has the same beta as the market, so it also has the same total risk as the market.

(d) If stock A and B were combined in a portfolio with weights of 50% each, the beta of the portfolio would be 0.75.

(e) Stocks A and B have more systematic risk than the risk free security (government bonds) so their return should be greater than the risk free rate.

(a) coupon rate = ##\dfrac{C_{0.5}+C_{1}}{F_T}##, ##r_\text{income, 0 to 1}=\dfrac{C_{0.5}(1+r_\text{total})^{0.5}+C_{1}}{P_0}##

(b) coupon rate = ##\dfrac{2 \times C_{0.5}}{F_T}##, ##r_\text{income, 0 to 1}=\dfrac{C_{0.5}(1+r_\text{capital})^{0.5}+C_{1}}{P_0}##

(c) coupon rate = ##\dfrac{2 \times C_{1}}{P_0}##, ##r_\text{income, 0 to 1}=\dfrac{C_{0.5}+C_{1}}{P_0}##

(d) coupon rate = ##\dfrac{2 \times C_{1}}{P_0}##, ##r_\text{income, 0 to 1}=\dfrac{2 \times C_{1}}{P_0}##

(e) coupon rate = ##\dfrac{2 \times C_{1}}{F_T}##, ##r_\text{income, 0 to 1}=\dfrac{C_{0.5}(1+r_\text{total})^{0.5}+C_{1}}{F_T}##

(a) 9.55%, so buy the stock since its required return is too high for its low risk.

(b) 7.37%, so buy the stock since its required return is too high for its low risk.

(c) 7.37%, so sell the stock since its required return is too high for its low risk.

(d) 3.62%, so buy the stock since its required return is too low for its low risk.

(e) 3.62%, so sell the stock since its required return is too low for its low risk.

(a) Discount loan

(b) Par loan

(c) Premium loan

(d) Deferred repayment loan

(e) Fully amortising loan.

(a) ##(c_1/p_0 ) -1##

(b) ##(p_1/p_0) -1##

(c) ##(c_5/c_4) -1##

(d) ##c_3/p_2##

(e) ##(p_1-p_0)/p_0##

(a) Common equity in small private companies.

(b) Common equity in large private companies.

(c) Common equity in listed public companies.

(d) Fixed term bonds of listed public companies.

(e) Real estate.

(a) The rental yield will fall and approach zero.

(b) The total return will fall and approach the capital return (5% pa).

(c) One or all of the following must fall: the systematic risk of real estate, the risk free rate or the market risk premium.

(d) If the country's nominal wealth growth rate is 4% pa and the nominal real estate growth rate is 5% pa then real estate will approach 100% of the country's wealth over time.

(e) If the country's nominal gross domestic production (GDP) growth rate is 4% pa and the nominal real estate rent growth rate is 2% pa then real estate rent will approach 100% of the country's GDP over time.

(a) AUD 0.2 million.

(b) AUD 0.8 million

(c) AUD 1 million

(d) AUD 1.25 million.

(e) AUD 1.8 million.

You owe money. Are you a or a ?