Treasury bonds currently have a return of 5% pa. A stock has a beta of 0.5 and the market return is 10% pa. What is the expected return of the stock?

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:

The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.

###P_0=\frac{d_1}{r-g}###

A stock pays dividends annually. It just paid a dividend, but the next dividend (##d_1##) will be paid in one year.

According to the DDM, what is the correct formula for the expected price of the stock in 2.5 years?

An Indonesian lady wishes to convert 1 million Indonesian rupiah (IDR) to Australian dollars (AUD). Exchange rates are 13,125 IDR per USD and 0.79 USD per AUD. How many AUD is the IDR 1 million worth?

A trader **buys** one December futures contract on orange juice. Each contract is for the delivery of **10,000** pounds. The current futures price is $**1.20** per pound. The initial margin is $**5,000** per contract, and the maintenance margin is $**4,000** per contract.

What is the smallest price change would that would lead to a margin call for the buyer?

**Question 657** systematic and idiosyncratic risk, CAPM, no explanation

A stock's **required** total return will **decrease** when its:

A pig farmer in the US is worried about the price of hogs falling and wants to lock in a price now. In one year the pig farmer intends to sell **1,000,000** pounds of hogs. Luckily, one year CME lean hog futures expire on the exact day that he wishes to sell his pigs. The futures have a notional principal of **40,000** pounds (about 18 metric tons) and currently trade at a price of **63.85** cents per pound. The underlying lean hogs spot price is **77.15** cents per pound. The correlation between the futures price and the underlying hogs price is **one** and the standard deviations are both **4** cents per pound. The initial margin is USD**1,500** and the maintenance margin is USD**1,200** per futures contract.

Which of the below statements is **NOT** correct?

**Question 708** continuously compounding rate, continuously compounding rate conversion

Convert a **10**% continuously compounded annual rate ##(r_\text{cc annual})## into an effective annual rate ##(r_\text{eff annual})##. The equivalent effective annual rate is:

**Question 743** price gains and returns over time, no explanation

How many years will it take for an asset's price to **triple** (increase from say $1 to $3) if it grows by **5**% pa?

**Question 825** future, hedging, tailing the hedge, speculation, no explanation

An equity index fund manager controls a USD**500** million diversified equity portfolio with a beta of **0.9**. The equity manager expects a significant rally in equity prices next year. The market does not think that this will happen. If the fund manager wishes to increase his portfolio beta to **1.5**, how many S&P500 futures should he buy?

The US market equity index is the S&P500. One year CME futures on the S&P500 currently trade at **2,155** points and the spot price is **2,180** points. Each point is worth $**250**.

The number of one year S&P500 futures contracts that the fund manager should buy is: