The required return of a project is 10%, given as an effective annual rate.

What is the payback period of the project in years?

Assume that the cash flows shown in the table are received smoothly over the year. So the $121 at time 2 is actually earned smoothly from t=1 to t=2.

Project Cash Flows | |

Time (yrs) | Cash flow ($) |

0 | -100 |

1 | 11 |

2 | 121 |

**Question 155** inflation, real and nominal returns and cash flows, Loan, effective rate conversion

You are a banker about to grant a 2 year loan to a customer. The loan's principal and interest will be repaid in a single payment at maturity, sometimes called a zero-coupon loan, discount loan or bullet loan.

You require a **real** return of **6**% pa over the two years, given as an effective annual rate. Inflation is expected to be **2**% this year and **4**% next year, both given as effective annual rates.

You judge that the customer can afford to pay back $**1,000,000** in **2** years, given as a **nominal** cash flow. How much should you lend to her right now?

**Question 381** Merton model of corporate debt, option, real option

In the Merton model of corporate debt, buying a levered company's debt is equivalent to buying risk free government bonds and:

The efficient markets hypothesis (EMH) and no-arbitrage pricing theory are most closely related to which of the following concepts?

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 873** Sharpe ratio, Treynor ratio, Jensens alpha, SML, CAPM

Which of the following statements is **NOT** correct? Fairly-priced assets should:

**Question 889** cross currency interest rate parity, no explanation

Judging by the graph, in 2018 the USD short term interest rate set by the US Federal Reserve is higher than the JPY short term interest rate set by the Bank of Japan, which is higher than the EUR short term interest rate set by the European central bank.

At the latest date shown in 2018: ##r_{USD}>r_{JPY}>r_{EUR}##

Assume that each currency’s yield curve is flat at the latest date shown in 2018, so interest rates are expected to remain at their current level into the future.

Which of the following statements is **NOT** correct?

Over time you would expect the:

A New Zealand lady wants to calculate how many New Zealand Dollars (NZD) she needs to buy a 1 million Australian dollar (AUD) house in Sydney, Australia. The exchange rate is **0.69** USD per NZD and **0.72** USD per AUD. What is the AUD 1 million equivalent to in NZD?