Fight Finance

Question 98  capital structure, CAPM

A firm changes its capital structure by issuing a large amount of debt and using the funds to repurchase shares. Its assets are unchanged. Ignore interest tax shields.

According to the Capital Asset Pricing Model (CAPM), which statement is correct?

(a) The beta of the firm's assets will increase.

(b) The beta of the firm's assets will decrease.

(c) The beta of the firm's equity will increase.

(d) The beta of the firm's equity will decrease.

(e) The beta of the firm's equity will be unchanged.

Question 135  credit card, APR, no explanation

Your credit card shows a $600 debt liability. The interest rate is 24% pa, payable monthly. You can't pay any of the debt off, except in 6 months when it's your birthday and you'll receive $50 which you'll use to pay off the credit card. If that is your only repayment, how much will the credit card debt liability be one year from now?

(a) $688.32

(b) $704.64

(c) $710.95

(d) $760.95

(e) $817.25

Question 145  NPV, APR, annuity due

A student just won the lottery. She won $1 million in cash after tax. She is trying to calculate how much she can spend per month for the rest of her life. She assumes that she will live for another 60 years. She wants to withdraw equal amounts at the beginning of every month, starting right now.

All of the cash is currently sitting in a bank account which pays interest at a rate of 6% pa, given as an APR compounding per month. On her last withdrawal, she intends to have nothing left in her bank account. How much can she withdraw at the beginning of each month?

(a) $1,388.89

(b) $5,116.18

(c) $5,141.76

(d) $18,966.13

(e) $19,332.80

Question 540  APR, effective rate, no explanation

Which one of the below statements about effective rates and annualised percentage rates (APR's) is NOT correct?

(a) An effective semi-annual rate could be called: "a six month rate compounding per six months".

(b) An APR compounding semi-annually could be called: "a yearly rate compounding per six months".

(c) An effective monthly rate could be called: "a monthly rate compounding every month".

(d) An APR compounding monthly could be called: "a monthly rate compounding per year".

(e) An effective daily rate could be called: "a daily rate compounding every day".

Question 602  foreign exchange rate, American and European terms

Chinese people usually quote the Chinese Yuan or Renminbi in RMB per 1 USD. For example, in October 2015 the Chinese Renminbi was 6.35 RMB per USD. Is this an or terms quote?

Question 609  debt terminology

You deposit cash into your bank account. Have you or debt?

Question 673  CAPM, beta, expected and historical returns

A stock has a beta of 1.5. The market's expected total return is 10% pa and the risk free rate is 5% pa, both given as effective annual rates.

In the last 5 minutes, bad economic news was released showing a higher chance of recession. Over this time the share market fell by 1%. The risk free rate was unchanged.

What do you think was the stock's historical return over the last 5 minutes, given as an effective 5 minute rate?

(a) -12.5%

(b) -4%

(c) -1.5%

(d) -1%

(e) 12.5%

Question 725  return distribution, mean and median returns

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

Question 749  Multiples valuation, PE ratio, price to revenue ratio, price to book ratio, NPV

A real estate agent says that the price of a house in Sydney Australia is approximately equal to the gross weekly rent times 1000.

What type of valuation method is the real estate agent using?

(a) Price to EBITDA multiple.

(b) Price to book multiple.

(c) Price to earnings multiple.

(d) Price to revenue multiple.

(e) Discounted cash flow (DCF).

Question 794  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 Delta of a European call option?

(a) ##N[d_1]##

(b) ##N[d_2]##

(c) ##−N[−d_1]##

(d) ##−N[−d_2]##

(e) ##N[−d_2]##

Where:

###d_1=\dfrac{\ln⁡[S_0/K]+(r+\sigma^2/2).T)}{\sigma.\sqrt{T}}### ###d_2=d_1-\sigma.\sqrt{T}=\dfrac{\ln⁡[S_0/K]+(r-\sigma^2/2).T)}{\sigma.\sqrt{T}}###