Fight Finance

Government bonds currently have a return of 5%. A stock has a beta of 2 and the market return is 7%. What is the expected return of the stock?

Examine the following graph which shows stocks' betas ##(\beta)## and expected returns ##(\mu)##:

Assume that the CAPM holds and that future expectations of stocks' returns and betas are correctly measured. Which statement is NOT correct?

Economic statistics released this morning were a surprise: they show a strong chance of consumer price inflation (CPI) reaching 5% pa over the next 2 years.

This is much higher than the previous forecast of 3% pa.

A vanilla fixed-coupon 2-year risk-free government bond was issued at par this morning, just before the economic news was released.

What is the expected change in bond price after the economic news this morning, and in the next 2 years? Assume that:

• Inflation remains at 5% over the next 2 years.
• Investors demand a constant real bond yield.
• The bond price falls by the (after-tax) value of the coupon the night before the ex-coupon date, as in real life.

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:

Which of the below formulas gives the payoff ##(f)## at maturity ##(T)## from being short a call option? Let the underlying asset price at maturity be ##S_T## and the exercise price be ##X_T##.

Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.

1. Alice buys a future from Bob.

2. Chris buys a future from Delta.

3. Delta buys a future from Bob.

These were the only trades made in this equity index future. What was the trading volume and what is the open interest?

Calculate Australia’s GDP over the 2016 calendar year using the below table:

Source: ABS 5206.0 Australian National Accounts: National Income, Expenditure and Product. Table 3. Expenditure on Gross Domestic Product (GDP), Current prices.

Over the 2016 calendar year, Australia’s GDP was:

The government spends money on:

• Goods and services such as defence, police, schools, hospitals and roads; and
• Transfer payments (also called welfare) such as the pension, dole, disability support and student support.

When calculating GDP (=C+I+G+X-M), the ‘government spending’ component (G) is supposed to include:

Below is a table showing some figures about the Australian labour force.

Source: ABS 6202.0 Labour Force, Australia, Apr 2017

What do you estimate is the size of working age population in thousands (‘000)?

Adam and Bella are the only people on a remote island. Their production possibility curves are shown in the graph.

Assume that Adam and Bella cooperate according to the principle of comparative advantage.

Which of the following statements is NOT correct?