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?
A project's Profitability Index (PI) is less than 1. Select the most correct statement:
After doing extensive fundamental analysis of a company, you believe that their shares are overpriced and will soon fall significantly. The market believes that there will be no such fall.
Which of the following strategies is NOT a good idea, assuming that your prediction is true?
Which of the following statements about yield curves is NOT correct?
Question 707 continuously compounding rate, continuously compounding rate conversion
Convert a 10% effective annual rate ##(r_\text{eff annual})## into a continuously compounded annual rate ##(r_\text{cc annual})##. The equivalent continuously compounded annual rate is:
Question 796 option, Black-Scholes-Merton option pricing, option delta, no explanation
Which of the following quantities from the Black-Scholes-Merton option pricing formula gives the risk-neutral probability that a European call option will be exercised?
Question 898 comparative advantage in trade, production possibilities curve, no explanation
Adam and Bella are the only people on a remote island. Their production possibility curves are shown in the graph.
Assuming that Adam and Bella cooperate according to the principles of comparative advantage, what will be their combined production possibilities curve?
Question 907 continuously compounding rate, return types, return distribution, price gains and returns over time
For an asset's price to double from say $1 to $2 in one year, what must its continuously compounded return ##(r_{CC})## be? If the price now is ##P_0## and the price in one year is ##P_1## then the continuously compounded return over the next year is:
###r_\text{CC annual} = \ln{\left[ \dfrac{P_1}{P_0} \right]} = \text{LGDR}_\text{annual}###Question 941 negative gearing, leverage, capital structure, interest tax shield, real estate
Last year, two friends Lev and Nolev each bought similar investment properties for $1 million. Both earned net rents of $30,000 pa over the past year. They funded their purchases in different ways:
- Lev used $200,000 of his own money and borrowed $800,000 from the bank in the form of an interest-only loan with an interest rate of 5% pa.
- Nolev used $1,000,000 of his own money, he has no mortgage loan on his property.
Both Lev and Nolev also work in high-paying jobs and are subject personal marginal tax rates of 45%.
Which of the below statements about the past year is NOT correct?
Question 973 foreign exchange rate, monetary policy, no explanation
Suppose the market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting. The current exchange rate is 0.8 USD per AUD.
Then unexpectedly, the RBA announce that they will leave the policy rate unchanged due to increasing unemployment and fears of a potential recession.
What do you expect to happen to Australia's exchange rate on the day when the surprise announcement is made? The Australian dollar is likely to: