For a price of $6, Carlos will sell you a share which will pay a dividend of $1 in one year and every year after that forever. The required return of the stock is 10% pa.
| Portfolio Details | ||||||
| Stock | Expected return |
Standard deviation |
Correlation ##(\rho_{A,B})## | Dollars invested |
||
| A | 0.1 | 0.4 | 0.5 | 60 | ||
| B | 0.2 | 0.6 | 140 | |||
What is the standard deviation (not variance) of returns of the above portfolio?
Bonds X and Y are issued by different companies, but they both pay a semi-annual coupon of 10% pa and they have the same face value ($100) and maturity (3 years).
The only difference is that bond X and Y's yields are 8 and 12% pa respectively. Which of the following statements is true?
Question 210 real estate, inflation, real and nominal returns and cash flows, income and capital returns
Assume that the Gordon Growth Model (same as the dividend discount model or perpetuity with growth formula) is an appropriate method to value real estate.
An old rule of thumb in the real estate industry is that properties should yield a 5% pa rental return. Some investors also regard property to be as risky as the stock market, therefore property is thought to have a required total return of 9% pa which is the average total return on the stock market including dividends.
Assume that all returns are effective annual rates and they are nominal (not reduced by inflation). Inflation is expected to be 2% pa.
You're considering purchasing an investment property which has a rental yield of 5% pa and you expect it to have the same risk as the stock market. Select the most correct statement about this property.
You just bought a nice dress which you plan to wear once per month on nights out. You bought it a moment ago for $600 (at t=0). In your experience, dresses used once per month last for 6 years.
Your younger sister is a student with no money and wants to borrow your dress once a month when she hits the town. With the increased use, your dress will only last for another 3 years rather than 6.
What is the present value of the cost of letting your sister use your current dress for the next 3 years?
Assume: that bank interest rates are 10% pa, given as an effective annual rate; you will buy a new dress when your current one wears out; your sister will only use the current dress, not the next one that you will buy; and the price of a new dress never changes.
All things remaining equal, the higher the correlation of returns between two stocks:
Question 664 real and nominal returns and cash flows, inflation, no explanation
What is the present value of real payments of $100 every year forever, with the first payment in one year? The nominal discount rate is 7% pa and the inflation rate is 4% pa.
The risk-weight on "Margin lending against listed instruments on recognised exchanges" is 20% according to APRA's interpretation of the Basel 3 Accord in 'Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk, Attachment A: Risk-weights for on-balance sheet assets'.
A bank is considering lending a $100,000 margin loan secured by an ASX-listed stock. How much regulatory capital will the bank require to grant this loan under the Basel 3 Accord? Ignore the capital conservation buffer and the off-balance sheet exposure.
Question 884 monetary policy, impossible trinity, foreign exchange rate, no explanation
According to the impossible trinity, a currency can only have two of these three desirable traits: be fixed against the USD; convertible to and from USD for traders and investors so there are open goods, services and capital markets; and allow independent monetary policy set by the country’s central bank, independent of the US central bank.
Which of the following exchange rate regimes sacrifices fixing the exchange rate to the USD? In other words, which regime uses a floating exchange rate?
Question 980 balance of payments, current account, no explanation
Observe the below graph of the US current account surplus as a proportion of GDP.
Define lending as buying (or saving or investing in) debt and equity assets.
The sum of US ‘net private saving’ plus ‘net general government lending’ equals the US: