Question 58 NPV, inflation, real and nominal returns and cash flows, Annuity
A project to build a toll bridge will take two years to complete, costing three payments of $100 million at the start of each year for the next three years, that is at t=0, 1 and 2.
After completion, the toll bridge will yield a constant $50 million at the end of each year for the next 10 years. So the first payment will be at t=3 and the last at t=12. After the last payment at t=12, the bridge will be given to the government.
The required return of the project is 21% pa given as an effective annual nominal rate.
All cash flows are real and the expected inflation rate is 10% pa given as an effective annual rate. Ignore taxes.
The Net Present Value is:
A zero coupon bond that matures in 6 months has a face value of $1,000.
The firm that issued this bond is trying to forecast its income statement for the year. It needs to calculate the interest expense of the bond this year.
The bond is highly illiquid and hasn't traded on the market. But the finance department have assessed the bond's fair value to be $950 and this is its book value right now at the start of the year.
Assume that:
- the firm uses the 'effective interest method' to calculate interest expense.
- the market value of the bond is the same as the book value.
- the firm is only interested in this bond's interest expense. Do not include the interest expense for a new bond issued to refinance the current one, as would normally happen.
What will be the interest expense of the bond this year for the purpose of forecasting the income statement?
Question 321 foreign exchange rate, monetary policy, American and European terms
The market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting.
Then unexpectedly, the RBA announce that they will increase the policy rate by 50 basis points due to high future GDP and inflation forecasts.
What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar will:
A young lady is trying to decide if she should attend university. Her friends say that she should go to university because she is more likely to meet a clever young man than if she begins full time work straight away.
What's the correct way to classify this item from a capital budgeting perspective when trying to find the Net Present Value of going to university rather than working?
The opportunity to meet a desirable future spouse should be classified as:
An investor bought a 10 year 2.5% pa fixed coupon government bond priced at par. The face value is $100. Coupons are paid semi-annually and the next one is in 6 months.
Six months later, just after the coupon at that time was paid, yields suddenly and unexpectedly fell to 2% pa. Note that all yields above are given as APR's compounding semi-annually.
What was the bond investors' historical total return over that first 6 month period, given as an effective semi-annual rate?
What is the correlation of a variable X with a constant C?
The corr(X, C) or ##\rho_{X,C}## equals:
Question 794 option, Black-Scholes-Merton option pricing, option delta, no explanation
Which of the following quantities from the Black-Scholes-Merton option pricing formula gives the Delta of a European call option?
Where:
###d_1=\dfrac{\ln[S_0/K]+(r+\sigma^2/2).T)}{\sigma.\sqrt{T}}### ###d_2=d_1-\sigma.\sqrt{T}=\dfrac{\ln[S_0/K]+(r-\sigma^2/2).T)}{\sigma.\sqrt{T}}###Question 881 Nixon Shock, Bretton Woods, foreign exchange rate, foreign exchange system history, no explanation
In the ‘Nixon Shock’ on August 15, 1971, the United States government:
Question 888 foreign exchange rate, speculation, no explanation
The current Australian exchange rate is 0.8 USD per AUD.
If you think that the AUD will depreciate against the USD, contrary to the rest of the market, how could you profit? Right now you should: