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Question 87  fully amortising loan, APR

You want to buy an apartment worth $500,000. You have saved a deposit of $50,000. The bank has agreed to lend you the $450,000 as a fully amortising mortgage loan with a term of 25 years. The interest rate is 6% pa and is not expected to change.

What will be your monthly payments?



Question 131  APR, effective rate

Calculate the effective annual rates of the following three APR's:

  • A credit card offering an interest rate of 18% pa, compounding monthly.
  • A bond offering a yield of 6% pa, compounding semi-annually.
  • An annual dividend-paying stock offering a return of 10% pa compounding annually.

All answers are given in the same order:

##r_\text{credit card, eff yrly}##, ##r_\text{bond, eff yrly}##, ##r_\text{stock, eff yrly}##



Question 194  bond pricing, capital raising

A firm wishes to raise $8 million now. They will issue 7% pa semi-annual coupon bonds that will mature in 10 years and have a face value of $100 each. Bond yields are 10% pa, given as an APR compounding every 6 months, and the yield curve is flat.

How many bonds should the firm issue?



Question 409  NPV, capital structure, capital budgeting

A pharmaceutical firm has just discovered a valuable new drug. So far the news has been kept a secret.

The net present value of making and commercialising the drug is $200 million, but $600 million of bonds will need to be issued to fund the project and buy the necessary plant and equipment.

The firm will release the news of the discovery and bond raising to shareholders simultaneously in the same announcement. The bonds will be issued shortly after.

Once the announcement is made and the bonds are issued, what is the expected increase in the value of the firm's assets (ΔV), market capitalisation of debt (ΔD) and market cap of equity (ΔE)?

The triangle symbol is the Greek letter capital delta which means change or increase in mathematics.

Ignore the benefit of interest tax shields from having more debt.

Remember: ##ΔV = ΔD+ΔE##



Question 614  debt terminology

You buy a house funded using a home loan. Have you or debt?


Question 676  option, option profit, no explanation

Which of the below formulas gives the profit ##(\pi)## from being short a call option? Let the underlying asset price at maturity be ##S_T##, the exercise price be ##X_T## and the option price be ##f_{LC,0}##. Note that ##S_T##, ##X_T## and ##f_{LC,0}## are all positive numbers.



Question 856  credit terms, no explanation

Your supplier’s credit terms are "1/10 net 30". Which of the following statements about these credit terms is NOT correct?

If you intend to buy an item from your supplier for a tag price of $100 and you:



Question 877  arithmetic and geometric averages, utility, utility function

Gross discrete returns in different states of the world are presented in the table below. A gross discrete return is defined as ##P_1/P_0##, where ##P_0## is the price now and ##P_1## is the expected price in the future. An investor can purchase only a single asset, A, B, C or D. Assume that a portfolio of assets is not possible.

Gross Discrete Returns
In Different States of the World
Investment World states (probability)
asset Good (50%) Bad (50%)
A 2 0.5
B 1.1 0.9
C 1.1 0.95
D 1.01 1.01
 

 

Which of the following statements about the different assets is NOT correct? Asset:



Question 901  Basel accord

The below graph from the RBA shows the phase-in of the Basel 3 minimum regulatory capital requirements under the Basel Committee on Banking Supervision (BCBS) on the left panel and in Australia under the Australian Prudential Regulatory Authority (APRA) on the right panel.

Which of the following statements about the Basel 3 minimum regulatory capital requirements as at 2019 is NOT correct? All minimum amounts exclude the 2.5% counter-cyclical buffer.

The Basel 3 minimum regulatory capital requirement as a percent of Risk Weighted Assets (RWA) is:



Question 950  futures, backwardation

If futures prices are in backwardation, then futures prices (##F_{0,T}##) are than, than or to spot prices (##S_0##)?