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Question 73  portfolio risk, standard deviation

Portfolio Details
Stock Expected
return
Standard
deviation
Covariance ##(\sigma_{A,B})## Beta Dollars
invested
A 0.2 0.4 0.12 0.5 40
B 0.3 0.8 1.5 80
 

What is the standard deviation (not variance) of the above portfolio? Note that the stocks' covariance is given, not correlation.



Question 261  income and capital returns

A share was bought for $4 and paid an dividend of $0.50 one year later (at t=1 year).

Just after the dividend was paid, the share price fell to $3.50 (at t=1 year). What were the total return, capital return and income returns given as effective annual rates? The answer choices are given in the same order:

##r_\text{total}##, ##r_\text{capital}##, ## r_\text{income}##



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:



Question 435  option, no explanation

Will the price of a call option on equity or if the standard deviation of returns (risk) of the underlying shares becomes higher?


Question 605  cross currency interest rate parity, foreign exchange rate

If the Reserve Bank of Australia is expected to keep its interbank overnight cash rate at 2% pa while the US Federal Reserve is expected to keep its federal funds rate at 0% pa over the next year, is the AUD is expected to , , or remain against the USD over the next year?


Question 606  foreign exchange rate, American and European terms

Which of the following FX quotes (current in October 2015) is given in American terms?



Question 651  future

Which of the following statements about futures is NOT correct?



Question 659  APR, effective rate, effective rate conversion, no explanation

A home loan company advertises an interest rate of 9% pa, payable monthly. Which of the following statements about the interest rate is NOT correct? All rates are given with an accuracy of 4 decimal places.



Question 754  fully amortising loan, interest only loan

How much more can you borrow using an interest-only loan compared to a 25-year fully amortising loan if interest rates are 4% pa compounding per month and are not expected to change? If it makes it easier, assume that you can afford to pay $2,000 per month on either loan. Express your answer as a proportional increase using the following formula:

###\text{Proportional Increase} = \dfrac{V_\text{0,interest only}}{V_\text{0,fully amortising}} - 1###



Question 757  bond pricing, capital raising, no explanation

A firm wishes to raise $50 million now. They will issue 5% pa semi-annual coupon bonds that will mature in 10 years and have a face value of $100 each. Bond yields are 5% pa, given as an APR compounding every 6 months, and the yield curve is flat.

How many bonds should the firm issue?




Copyright © 2014 Keith Woodward