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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?

Question 92  CAPM, SML, CML

Which statement(s) are correct?

(i) All stocks that plot on the Security Market Line (SML) are fairly priced.

(ii) All stocks that plot above the Security Market Line (SML) are overpriced.

(iii) All fairly priced stocks that plot on the Capital Market Line (CML) have zero idiosyncratic risk.

Select the most correct response:

Question 191  NPV, IRR, profitability index, pay back period

A project's Profitability Index (PI) is less than 1. Select the most correct statement:

Question 216  DDM

A stock just paid its annual dividend of $9. The share price is $60. The required return of the stock is 10% pa as an effective annual rate.

What is the implied growth rate of the dividend per year?

Question 405  DDM, income and capital returns, no explanation

The perpetuity with growth formula is:

###P_0= \dfrac{C_1}{r-g}###

Which of the following is NOT equal to the total required return (r)?

Question 607  debt terminology

You deposit cash into your bank account. Have you or your money?

Question 749  Multiples valuation, PE ratio, NPV

A real estate agent says that the price of a house in Sydney Australia is approximately equal to the gross weekly rent times 1000.

What type of valuation method is the real estate agent using?

Question 820  option, future, no explanation

What derivative position are you exposed to if you have the obligation to sell the underlying asset at maturity, so you will definitely be forced to sell the underlying asset?

Question 834  option, delta, theta, gamma, standard deviation, Black-Scholes-Merton option pricing, no explanation

Which of the following statements about an option (either a call or put) and its underlying stock is NOT correct?

European Call Option
on a non-dividend paying stock
Description Symbol Quantity
Spot price ($) ##S_0## 20
Strike price ($) ##K_T## 18
Risk free cont. comp. rate (pa) ##r## 0.05
Standard deviation of the stock's cont. comp. returns (pa) ##\sigma## 0.3
Option maturity (years) ##T## 1
Call option price ($) ##c_0## 3.939488
Delta ##\Delta = N[d_1]## 0.747891
##N[d_2]## ##N[d_2]## 0.643514
Gamma ##\Gamma## 0.053199
Theta ($/year) ##\Theta = \partial c / \partial T## -1.566433


Question 850  gross domestic product, gross domestic product per capita, no explanation

Below is a table showing some countries’ GDP, population and GDP per capita.

Countries' GDP and Population
  GDP Population GDP per capita
  USD million millions of people USD
United States 18,036,648 325 55,492
China 11,158,457 1,383 8,066
Japan 4,383,076 127 34,586
Germany 3,363,600 83 40,623
Norway 500,519 5 95,027


Source: "GDP and its breakdown at current prices in US Dollars" United Nations Statistics Division. December 2016.

Using this data only, which one of these countries’ citizens have the highest living standards?

Copyright © 2014 Keith Woodward