Fight Finance

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?

(a) 1,500.00

(b) 2,250.00

(c) 2,855.79

(d) 2,899.36

(e) 35,202.02

Question 359  CFFA

Which one of the following will have no effect on net income (NI) but decrease cash flow from assets (CFFA or FFCF) in this year for a tax-paying firm, all else remaining constant?

Remember:

###NI=(Rev-COGS-FC-Depr-IntExp).(1-t_c )### ###CFFA=NI+Depr-CapEx - ΔNWC+IntExp###

(a) An increase in revenue (Rev).

(b) An increase in rent expense (a type of recurring fixed cost, FC).

(c) An increase in depreciation expense (Depr).

(d) An increase in inventories (a current asset).

(e) An decrease in interest expense (IntExp).

Question 389  real option, option

You're thinking of starting a new cafe business, but you're not sure if it will be profitable.

You have to decide what type of cups, mugs and glasses you wish to buy. You can pay to have your cafe's name printed on them, or just buy the plain un-marked ones. For marketing reasons it's better to have the cafe name printed. But the plain un-marked cups, mugs and glasses maximise your:

(a) Expansion option.

(b) Abandonment option.

(c) Timing (or delaying) option.

(d) Production (or switching) option.

(e) Underlying asset.

Question 435  option, no explanation

Will the price of a call option on equity or if the standard deviation of returns (risk) of the underlying shares becomes higher?

Question 505  equivalent annual cash flow

A low-quality second-hand car can be bought now for $1,000 and will last for 1 year before it will be scrapped for nothing.

A high-quality second-hand car can be bought now for $4,900 and it will last for 5 years before it will be scrapped for nothing.

What is the equivalent annual cost of each car? Assume a discount rate of 10% pa, given as an effective annual rate.

The answer choices are given as the equivalent annual cost of the low-quality car and then the high quality car.

(a) $100,   $490

(b) $909.09,   $608.5

(c) $1,000,   $980

(d) $1,000,   $1578.3

(e) $1,100,   $1,292.61

Question 517  DDM

A stock is expected to pay its next dividend of $1 in one year. Future annual dividends are expected to grow by 2% pa. So the first dividend of $1 will be in one year, the year after that $1.02 (=1*(1+0.02)^1), and a year later $1.0404 (=1*(1+0.02)^2) and so on forever.

Its required total return is 10% pa. The total required return and growth rate of dividends are given as effective annual rates.

Calculate the current stock price.

(a) $10

(b) $12.254902

(c) $12.5

(d) $12.75

(e) $13.75

Question 726  return distribution, mean and median returns

If a stock's expected future prices are log-normally distributed, what will be bigger, the stock's or future price? Or would you expect them to be ?

Question 829  option, future, delta, gamma, theta, no explanation

Below are some statements about futures and European-style options on non-dividend paying stocks. Assume that the risk free rate is always positive. Which of these statements is NOT correct? All other things remaining equal:

(a) As time elapses, call option prices always fall.

(b) As time elapses, put option prices always fall.

(c) The long future always has a zero Gamma.

(d) The more in-the-money the long call option is, the higher (more positive) is its Delta.

(e) The more in-the-money the long put option is, the lower (more negative) is its Delta.

Question 944  stock split, bonus issue, stock dividend

A 2-for-1 stock split is equivalent to a 1-for-1 bonus issue or a 100% stock dividend. or ?

Question 954  option, at the money option

If a put option is at-the-money, then the spot price (##S_0##) is than, than or to the put option's strike price (##K_T##)?