Due to floods overseas, there is a cut in the supply of the mineral iron ore and its price increases dramatically. An Australian iron ore mining company therefore expects a large but temporary increase in its profit and cash flows. The mining company does not have any positive NPV projects to begin, so what should it do? Select the most correct answer.
An established mining firm announces that it expects large losses over the following year due to flooding which has temporarily stalled production at its mines. Which statement(s) are correct?
(i) If the firm adheres to a full dividend payout policy it will not pay any dividends over the following year.
(ii) If the firm wants to signal that the loss is temporary it will maintain the same level of dividends. It can do this so long as it has enough retained profits.
(iii) By law, the firm will be unable to pay a dividend over the following year because it cannot pay a dividend when it makes a loss.
Select the most correct response:
A stock is expected to pay the following dividends:
Cash Flows of a Stock | ||||||
Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
Dividend ($) | 8 | 8 | 8 | 20 | 8 | ... |
After year 4, the dividend will grow in perpetuity at 4% pa. The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates. Note that the $8 dividend at time zero is about to be paid tonight.
What will be the price of the stock in 5 years (t = 5), just after the dividend at that time has been paid?
Diversification in a portfolio of two assets works best when the correlation between their returns is:
A 30 year Japanese government bond was just issued at par with a yield of 1.7% pa. The fixed coupon payments are semi-annual. The bond has a face value of $100.
Six months later, just after the first coupon is paid, the yield of the bond increases to 2% pa. What is the bond's new price?
Which of the following interest rate quotes is NOT equivalent to a 10% effective annual rate of return? Assume that each year has 12 months, each month has 30 days, each day has 24 hours, each hour has 60 minutes and each minute has 60 seconds. APR stands for Annualised Percentage Rate.
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:
A stock's returns are normally distributed with a mean of 10% pa and a standard deviation of 20 percentage points pa. What is the 95% confidence interval of returns over the next year? Note that the Z-statistic corresponding to a one-tail:
- 90% normal probability density function is 1.282.
- 95% normal probability density function is 1.645.
- 97.5% normal probability density function is 1.960.
The 95% confidence interval of annual returns is between:
Question 948 VaR, expected shortfall
Below is a historical sample of returns on the S&P500 capital index.
S&P500 Capital Index Daily Returns Ranked from Best to Worst |
||
10,000 trading days from 4th August 1977 to 24 March 2017 based on closing prices. |
||
Rank | Date (DD-MM-YY) |
Continuously compounded daily return (% per day) |
1 | 21-10-87 | 9.23 |
2 | 08-03-83 | 8.97 |
3 | 13-11-08 | 8.3 |
4 | 30-09-08 | 8.09 |
5 | 28-10-08 | 8.01 |
6 | 29-10-87 | 7.28 |
… | … | … |
9980 | 11-12-08 | -5.51 |
9981 | 22-10-08 | -5.51 |
9982 | 08-08-11 | -5.54 |
9983 | 22-09-08 | -5.64 |
9984 | 11-09-86 | -5.69 |
9985 | 30-11-87 | -5.88 |
9986 | 14-04-00 | -5.99 |
9987 | 07-10-98 | -6.06 |
9988 | 08-01-88 | -6.51 |
9989 | 27-10-97 | -6.55 |
9990 | 13-10-89 | -6.62 |
9991 | 15-10-08 | -6.71 |
9992 | 29-09-08 | -6.85 |
9993 | 07-10-08 | -6.91 |
9994 | 14-11-08 | -7.64 |
9995 | 01-12-08 | -7.79 |
9996 | 29-10-08 | -8.05 |
9997 | 26-10-87 | -8.4 |
9998 | 31-08-98 | -8.45 |
9999 | 09-10-08 | -12.9 |
10000 | 19-10-87 | -23.36 |
Mean of all 10,000: | 0.0354 | |
Sample standard deviation of all 10,000: | 1.2062 | |
Sources: Bloomberg and S&P. | ||
Assume that the one-tail Z-statistic corresponding to a probability of 99.9% is exactly 3.09. Which of the following statements is NOT correct? Based on the historical data, the 99.9% daily:
Which of the following statements is NOT correct? An inverted US government bond yield curve indicates that: