Fight Finance

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(a) The internal rate of return (IRR) of buying a fairly priced bond is equal to the bond's yield.

(b) The Present Value of a fairly priced bond's coupons and face value is equal to its price.

(c) If a fairly priced bond's required return rises, its price will fall.

(d) Fairly priced premium bonds' yields are less than their coupon rates, prices are more than their face values, and the NPV of buying them is therefore positive.

(e) The NPV of buying a fairly priced bond is zero.

(a) 0.000381

(b) 0.129887

(c) 0.137736

(d) 0.149276

(e) 0.278643

(a) The prices of bonds A and B will be more than $100.

(b) The prices of bonds A and B will be less than $100.

(c) Bond A will have a price more than $100, and bond B will have a price less than $100.

(d) Bond A will have a price less than $100, and bond B will have a price more than $100.

(e) Bonds A and B will both have a price of $100.

(a) ## g_\text{eff} ##

(b) ## \dfrac{p_1}{p_0} -1 ##

(c) ## \dfrac{d_5}{d_4} -1 ##

(d) ## \dfrac{d_1}{p_0} - 1 ##

(e) ## \dfrac{p_1-p_0}{p_0} ##

(a) Destroying customers' expansion option.

(b) Destroying customers' abandonment option.

(c) Destroying customers' timing (or delaying) option.

(d) Destroying customers' production (or switching) option.

(e) Growing customers' binomial tree.

(a) Assets.

(b) Liabilities and owner's equity.

(c) Current assets and current liabilities.

(d) Dividends and buy backs.

(e) Net income, also known as earnings or net profit after tax.

(a) The geometric average of the gross discrete returns (GAGDR) equals 1.04075 which is 104.075%.

(b) ##\exp \left( \text{GAGDR} \right) = \text{AALGDR}##. The natural exponent of the GAGDR equals the arithmetic average of the logarithms of the gross discrete returns (AALGDR).

(c) ##\text{GAGDR}^T = \left( P_T/P_0 \right)##. The GAGDR raised to the power of the number of time period that it's measured over equals the ratio of the first and last prices.

(d) ##\text{GAGDR} = \exp \left( \text{AALGDR} \right)##. This is always true, regardless of the distribution of the prices or returns. The logarithm of the geometric average of the gross discrete returns (LGAGDR) is always equal to the arithmetic average of the logarithm of the gross discrete returns (AALGDR).

(e) ##\text{AAGDR} \approx \exp \left( \text{AALGDR} + \text{SDLGDR}^2/2 \right)##. This is only approximately true and depends on the distribution of the prices and returns. It's asymptotically true as the time period that the returns are measured over reaches infinity.

(a) The median portfolio value in one year is $1,105,171. In one month it's $1,008,368.

(b) The mean portfolio value in one year is $1,197,217. In one month it's $1,015,113.

(c) The worst one percentile of portfolio values in one year is $435,178.

(d) The worst one percentile of portfolio values in one month is $933,016.

(e) The 98% confidence interval of portfolio values in two years is between $326,918 and $4,563,305.

(a) Price must be greater than zero (p>0).

(b) Price can be greater than its exercise price (p>K).

(c) Price can be greater than the underlying asset's price (p>S).

(d) Exercise price can be greater than the underlying asset's price (K>S).

(e) Profit must be less than the payoff at maturity from the long trader’s perspective.