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Question 383  Merton model of corporate debt, real option, option

In the Merton model of corporate debt, buying a levered company's debt is equivalent to buying the company's assets and:



Question 612  debt terminology

You are owed money. Are you a or a ?


Question 616  idiom, debt terminology, bond pricing

"Buy low, sell high" is a phrase commonly heard in financial markets. It states that traders should try to buy assets at low prices and sell at high prices.

Traders in the fixed-coupon bond markets often quote promised bond yields rather than prices. Fixed-coupon bond traders should try to:



Question 678  option, option profit, no explanation

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



Question 720  mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate

A stock has an arithmetic average continuously compounded return (AALGDR) of 10% pa, a standard deviation of continuously compounded returns (SDLGDR) of 80% pa and current stock price of $1. Assume that stock prices are log-normally distributed.

In 5 years, what do you expect the mean and median prices to be? The answer options are given in the same order.



Question 728  inflation, real and nominal returns and cash flows, income and capital returns, no explanation

Which of the following statements about gold is NOT correct? Assume that the gold price increases by inflation. Gold:



Question 769  short selling, idiom, no explanation

"Buy low, sell high" is a well-known saying. It suggests that investors should buy low then sell high, in that order.

How would you re-phrase that saying to describe short selling?



Question 859  money supply, no explanation

The below table shows Australian monetary aggregates. Note that ‘M3’ is the sum of all the figures in the table and ‘ADI’ stands for Authorised Deposit-taking Institution such as a bank, building society or credit union.

Australian Monetary Aggregates
March 2017, AUD billions
Currency Current deposits
with banks
Certificates of deposit
issued by banks
Term deposits
with banks
Other deposits
with banks
Deposits with
non-bank ADIs
M3
69.3 271.6 207.2 562.3 838.7 36.9 1986.0
 

 

Source: RBA Statistical Table D3 Monetary Aggregates.

Which of the following statements is NOT correct?



Question 905  market capitalisation of equity, PE ratio, payout ratio

The below graph shows the computer software company Microsoft's stock price (MSFT) at the market close on the NASDAQ on Friday 1 June 2018.

Based on the screenshot above, which of the following statements about MSFT is NOT correct? MSFT's:



Question 1008  WACC, leverage, CFFA, EFCF, no explanation

An analyst is valuing a levered company whose owners insist on keeping a constant market debt to assets ratio into the future.

The analyst is wondering how asset values and other things in her model will change when she changes the forecast sales growth rate.

Which of the below values will increase as the forecast growth rate of sales increases, with the debt to assets ratio remaining constant?

Assume that the cost of debt (yield) remains constant and the company’s asset beta will also remain constant since any expansion (or downsize) will involve buying (or selling) more of the same assets.

The analyst should expect which value or ratio to increase when the forecast growth rate of sales increases and the debt to assets ratio remains unchanged? In other words, which of the following values will NOT remain constant?