Fight Finance

(a) 90.6421

(b) 95.1524

(c) 95.2055

(d) 96.1219

(e) 103.9751

(a) Bonds X and Y are premium bonds.

(b) Bonds X and Y are discount bonds.

(c) Bond X is a discount bond but bond Y is a premium bond.

(d) Bond X is a premium bond but bond Y is a discount bond.

(e) Bonds X and Y are par bonds.

(a) ##\sigma_\text{yearly}^2 = \sigma_\text{monthly}^2##

(b) ##\sigma_\text{yearly}^2 = \sigma_\text{monthly}^2 \times 12##

(c) ##\sigma_\text{yearly}^2 = \sigma_\text{monthly}^2 \times 12^2##

(d) ##\sigma_\text{yearly}^2 = \sigma_\text{monthly}^2 \times \sqrt{12}##

(e) ##\sigma_\text{yearly}^2 = \sigma_\text{monthly}^2 \times {12}^{1/3}##

A levered company's required return on debt is always less than its required return on equity. or ?

(a) Expansion option.

(b) Abandonment option.

(c) Timing (or delaying) option.

(d) Production (or switching) option.

(e) Underlying asset.

Two call options are exactly the same, but one has a low and the other has a high exercise price. Which option would you expect to have the higher price, the option with the or exercise price, or should they have the price?

(a) ##f_{LC,T}=max⁡(S_T-X_T,0)##

(b) ##f_{LC,T}=max⁡(X_T-S_T,0)##

(c) ##f_{LC,T}=-max⁡(S_T-X_T,0)##

(d) ##f_{LC,T}=-max⁡(X_T-S_T,0)##

(e) ##f_{LC,T}=min⁡(X_T-S_T,0)##

(a)##-1 < \text{Red} < \infty## if Red is log-normally distributed.

(b) ##-2 < \text{Green} < 2## if Green is normally distributed.

(c) ##0 < \text{Blue} < \infty## if Blue is log-normally distributed.

(d) If the Green distribution is normal, then the mode = median = mean.

(e) If the Red and Blue distributions are log-normal, then the mode < median < mean.

(a) The returns ##r_\text{t monthly}## are continuously compounded monthly returns and are likely to be normally distributed, so the mean, median and mode of these continuously compounded returns are all equal to 1% per month.

(b) The annualised average continuously compounded return is ##\bar{r}_\text{cc annual}=12×0.01=0.1=12\%\text{ pa}##. The annualised standard deviation is ##\sigma_\text{annual} = \sqrt{12}×0.05=0.173205081=17.32\%\text{ pa}##.

(c) Over the next 10 years the mean, median and mode continuously compounded 10 year returns will all equal ##0.01 \times 12 \times 10 = 120\%##.

(d) Over the next 10 years the expected mean gross discrete 10 year return is ##e^{(0.01 - 0.05^2/2)×12×10} = 2.857651118## and the median gross discrete 10 year return is ##e^{(0.01 + 0.05^2/2)×12×10}=3.857425531##.

(e) If the current price of the CBA shares is $75, then in 10 years they’re expected to have a mean value of ##75×e^{(0.01 + 0.05^2/2)×12×10} = 289.3069148## and a median value of ##75×e^{0.01×12×10}=249.0087692##.

(a) Historical capital return last year was negative ##\left( \dfrac{P_0 - P_{-1}}{P_{-1}} < 0 \right)##.

(b) Historical dividend yield last year was negative ##\left( \dfrac{C_0}{P_{-1}} < 0 \right)##.

(c) Expected future capital return next year is positive ##\left( \dfrac{P_1 - P_0}{P_0} > 0 \right)##.

(d) Expected future dividend yield next year is positive ##\left( \dfrac{C_1}{P_0} > 0 \right)##.

(e) Expected future total return next year is positive ##\left( \dfrac{P_1 - P_0 + C_1}{P_0} > 0 \right)##.