Jan offers to pay you $200 in 3 years if you pay him $100 now. You can borrow and lend from the bank at an interest rate of 10% pa, given as an effective annual rate.
Ignore credit risk. Remember:
\[ V_0 = \frac{V_t}{(1+r_{eff})^t} \]
Katya offers to pay you $100 at the end of every year for the next 5 years if you pay her $400 now. You can borrow and lend from the bank at an interest rate of 10% pa, given as an effective annual rate.
Ignore credit risk.
A listed company has a beta of 2 which is not expected to change. Its stock price is $100 now.
You have secret information that it will have a capital return of 10% and a dividend return of 7% over the next year. The dividend is paid annually. The market portfolio returns 10% pa and treasury bonds return 5% pa.
Your stock broker offers you the opportunity to buy 10 shares in the company now.
Birgitte the bond trader offers to sell you a 5 year zero-coupon government bond for $700. The face value of the bond is $1000.
You noticed in the financial news that the same line of government bonds sell at a yield of 6%, given as an APR compounding semi-annually.
Anastasia offers to pay you $100 at the end of every year for 5 years, with the first payment in 3 years, if you pay her $300.
You can borrow and lend from the bank at an interest rate of 10% pa, given as an effective annual rate. Ignore credit risk.
Tony offers to pay you $1000 in 10 years if you pay him $100 at the end of every year for the next 9 years.
You can borrow and lend from the bank at an interest rate of 10% pa, given as an effective annual rate. Ignore credit risk.
Damian the debt dealer has a bond for sale. He will sell you a 2 year 5% annual coupon paying bond at a yield of 10%.
Other bond dealers offer the following quotes which you can assume are fairly priced since bond dealing is a competitive market:
1 year 7% annual coupon bond at a yield of 8%
2 year 9% annual coupon bond at a yield of 12%.
Riven the banker offers to lend you $100 now if you pay him back $200 in 3 years.
Interest rates on personal loans offered by other banks are 12% pa given as an APR compounding monthly.
Camille offers to pay you $1,100 in 1 year if you pay her $1,000 now.
You and Camille are ordinary workers with clean credit records like most people. You and her and everyone else can borrow from the bank at an interest rate of 12% pa, and deposit money in the bank at an interest rate of 8% pa. Thus the bank has an 'interest rate spread' of 4%. Assume that this spread exists solely to compensate the bank for when debtors default, so it creates no profit for the bank.
All rates are given as effective annual rates. Take credit risk into account, do not ignore it.
Dom offers to pay you $1,100 in 1 year if you pay him $1,000 now. The thing is, there's a 20% chance that Dom will lose his job over the next year in which case he'll only be able to pay you back 60% of what he owes.
The risk free rate is 8% pa over the next year, given as an effective annual rate.