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?
Your friend just bought a house for $400,000. He financed it using a $320,000 mortgage loan and a deposit of $80,000.
In the context of residential housing and mortgages, the 'equity' tied up in the value of a person's house is the value of the house less the value of the mortgage. So the initial equity your friend has in his house is $80,000. Let this amount be E, let the value of the mortgage be D and the value of the house be V. So ##V=D+E##.
If house prices suddenly fall by 10%, what would be your friend's percentage change in equity (E)? Assume that the value of the mortgage is unchanged and that no income (rent) was received from the house during the short time over which house prices fell.
Remember:
### r_{0\rightarrow1}=\frac{p_1-p_0+c_1}{p_0} ###
where ##r_{0-1}## is the return (percentage change) of an asset with price ##p_0## initially, ##p_1## one period later, and paying a cash flow of ##c_1## at time ##t=1##.
A project has an internal rate of return (IRR) which is greater than its required return. Select the most correct statement.
Question 246 foreign exchange rate, forward foreign exchange rate, cross currency interest rate parity
Suppose the Australian cash rate is expected to be 8.15% pa and the US federal funds rate is expected to be 3.00% pa over the next 2 years, both given as nominal effective annual rates. The current exchange rate is at parity, so 1 USD = 1 AUD.
What is the implied 2 year forward foreign exchange rate?
Question 606 foreign exchange rate, American and European terms
Which of the following FX quotes (current in October 2015) is given in American terms?
Mr Blue, Miss Red and Mrs Green are people with different utility functions. Which of the statements about the 3 utility functions is NOT correct?
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Which of the following statements is NOT correct?
Question 903 option, Black-Scholes-Merton option pricing, option on stock index
A six month European-style call option on the S&P500 stock index has a strike price of 2800 points.
The underlying S&P500 stock index currently trades at 2700 points, has a continuously compounded dividend yield of 2% pa and a standard deviation of continuously compounded returns of 25% pa.
The risk-free interest rate is 5% pa continuously compounded.
Use the Black-Scholes-Merton formula to calculate the option price. The call option price now is:
Question 920 SML, CAPM, Sharpe ratio, Treynor ratio, Jensens alpha, no explanation
Over-priced assets should NOT: