Fight Finance

(a) 5% pa

(b) 7.5% pa

(c) 10% pa

(d) 12.5% pa

(e) 20% pa

(a) 1: short call, 2: long call, 3: short put, 4: long put.

(b) 1: long call, 2: long put, 3: short call, 4: short put.

(c) 1: short put, 2: long put, 3: short call, 4: long call.

(d) 1: long put, 2: short put, 3: long call, 4: short call.

(e) 1: short call, 2: long put, 3: long call, 4: short put.

(a) ## r-g ##

(b) ## \dfrac{d_1}{p_0} ##

(c) ## \dfrac{d_5}{p_4} ##

(d) ## \dfrac{d_5(1+g)^2}{p_6} ##

(e) ## \dfrac{d_3}{p_0(1+r)^2} ##

(a) Bonds X and Y are premium bonds.

(b) Bonds X and Y are discount bonds.

(c) Bond X is a discount bond but bond Y is a premium bond.

(d) Bond X is a premium bond but bond Y is a discount bond.

(e) Bonds X and Y have the same price.

(a) The rental yield will fall and approach zero.

(b) The total return will fall and approach the capital return (5% pa).

(c) One or all of the following must fall: the systematic risk of real estate, the risk free rate or the market risk premium.

(d) If the country's nominal wealth growth rate is 4% pa and the nominal real estate growth rate is 5% pa then real estate will approach 100% of the country's wealth over time.

(e) If the country's nominal gross domestic production (GDP) growth rate is 4% pa and the nominal real estate rent growth rate is 2% pa then real estate rent will approach 100% of the country's GDP over time.

You are owed money. Are you a or a ?

(a) Mr Blue, Miss Red and Mrs Green all prefer more wealth to less. This is rational from an economist's point of view.

(b) Mr Blue is risk averse. He will not enjoy a fair gamble and would like to buy fairly priced insurance.

(c) Miss Red is risk-neutral. She will not enjoy a fair gamble but wouldn't oppose it either. Similarly with fairly priced insurance.

(d) Mrs Green is risk-loving. She would enjoy a fair gamble and would dislike fairly priced insurance.

(e) Mr Blue would like to buy insurance, but only if it is fairly or under priced.

(a)##Red \sim \mathcal{N}(\mu, \sigma^2)##,   ##Green \sim \mathcal{N}(\mu, \sigma^2)##   and   ##Blue \sim \mathcal{N}(\mu, \sigma^2)##

(b) ##Red \sim \mathcal{N}(\mu, \sigma^2)##,   ##Green \sim \mathcal{N}(\mu, \sigma^2)##   and   ##Blue \sim \mathbf{ln} \mathcal{N}(\mu, \sigma^2)##

(c) ##Red \sim \mathcal{N}(\mu, \sigma^2)##,   ##Green \sim \mathbf{ln} \mathcal{N}(\mu, \sigma^2)##   and   ##Blue \sim \mathbf{ln} \mathcal{N}(\mu, \sigma^2)##

(d) ##Red \sim \mathbf{ln} \mathcal{N}(\mu, \sigma^2)##,   ##Green \sim \mathcal{N}(\mu, \sigma^2)##   and   ##Blue \sim \mathbf{ln} \mathcal{N}(\mu, \sigma^2)##

(e) ##Red \sim \mathbf{ln} \mathcal{N}(\mu, \sigma^2)##,   ##Green \sim \mathbf{ln} \mathcal{N}(\mu, \sigma^2)##   and   ##Blue \sim \mathbf{ln} \mathcal{N}(\mu, \sigma^2)##

If a stock's future expected continuously compounded annual returns are normally distributed, what will be bigger, the stock's or continuously compounded annual return? Or would you expect them to be ?

(a) Long call, long put and long bond.

(b) Long call, long put and short bond.

(c) Long call, short put and short bond.

(d) Short call, short put and short bond.

(e) Short call, long put and short bond.