**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?

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:

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

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)?

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?

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**?