Fight Finance

(a) 0.000381

(b) 0.129887

(c) 0.137736

(d) 0.149276

(e) 0.278643

(a) The firm issuing more debt and using the proceeds to repurchase stock.

(b) The firm issuing more equity and using the proceeds to pay off debt holders.

(c) The firm's industry becoming more systematically risky, for example if it was a mining company whose performance became more sensitive to countries' GDP growth, so the correlation of the firm's returns with the market was higher.

(d) The firm's industry becoming less systematically risky, for example if it was a child care centre and the government announced higher subsidies for parents using child care centres, so the correlation of the firm's returns with the market was lower.

(e) None of the above.

(a) 5% pa

(b) 7.5% pa

(c) 10% pa

(d) 12.5% pa

(e) 20% pa

(a) The expected dividend in 3 years will be: ##d_3 = d_1 (1+g)^2##.

(b) The expected price in 3 years will be: ##p_3 = p_0 (1+g)^3##.

(c) The expected effective 3 year total return measured over 3 years is equal to: ##r_{\text{total, 0}\rightarrow\text{3yr, eff 3yr}} = (1+r)^3-1##.

(d) The expected effective 3 year total return measured over 3 years will be: ##r_{\text{total, 0}\rightarrow\text{3yr, eff 3yr}} = \dfrac{p_3-p_0+d_3}{p_0}##.

(e) The expected effective annual dividend yield will be: ##r_{\text{dividend, 0}\rightarrow\text{3yr, eff annual}} = \dfrac{d_1}{p_0}##.

(a) 302.10

(b) 315.76

(c) 329.42

(d) 344.45

(e) 428.90

(a) The zero-coupon bond and the 7% semi-annual coupon bond were both discount bonds but now they are both premium bonds.

(b) The zero-coupon bond and the 7% semi-annual coupon bond were both premium bonds but now they are both discount bonds.

(c) When yields fell, the investor made a capital loss on both bonds.

(d) When yields fell, the investor made a capital gain on both bonds.

(e) When yields fell, the investor made a capital gain on the zero coupon bond but a loss on the 7% semi-annual coupon bond.

(a) Futures quotes displayed on the exchange change continuously.

(b) Futures prices written in existing futures contracts are fixed, they do not change since they’re written in the legal contract.

(c) One year futures quotes equal the market’s expectation of the underlying asset price in one year. For this reason futures markets are a good predictor of the underlying asset prices.

(d) Futures prices can be calculated based on the spot price of the underlying asset compounded forward at the total opportunity cost of capital, less any storage costs and plus any income yields such as dividends.

(e) The futures price quote and the underlying asset's spot price will converge over time. At the future's expiry they’ll be equal.

(a) -60%,   150%

(b) -42.22%,   150%

(c) -40%,   66.67%

(d) -22.22%,   66.67%

(e) -4.44%,   66.67%

(a) $35,654.3278

(b) $33,306.1775

(c) $15,774.2122

(d) $3,607.4559

(e) $2,775.5148

(a) The share price would halve.

(b) The number of shares would double.

(c) The market capitalisation of equity would be unchanged.

(d) The earnings per share (EPS) would halve.

(e) The price-earnings (PE) ratio would halve.