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q14. You just agreed to borrow $1 million to afford your dream home using a 30 year interest-only (IO) loan, paid monthly in arrears as is normal. You were offered a rate of:

2.4% pa compounded monthly by Strict Bank that required lots of documentation to prove your income and expenses, and a rate of;

3.6% pa compounded monthly by Loose Bank that required almost no documentation and was a pleasure to deal with.

You agreed to the more expensive rate loan with Loose Bank since you couldn't be bothered to gather the documentation, even though it would have only taken a moment. What was the net present value (NPV) of your decision to borrow using the more expensive interest rate compared to the cheaper one?

Select one:

a.

-$142,317.49

b.

-$165,932.60

c.

-$232,934.34

d.

-$256,448.81

e.

-$360,000.00

Examine the below graph.

The arithmetic log gross discrete return (AALGDR) is 15% pa.

The standard deviation of the log gross discrete returns (SDLGDR) is 80% pa.

The current stock price is $1.20.

Some labelled numbers have been deliberately replaced with letters in brackets corresponding to the answer choices below.

Which of the below statements is NOT correct? All numbers are rounded to 6 decimal places. The expected future:

Select one:

a.

Median price in one year is $1.394201.

b.

Mean price in one year is $1.919993.

c.

The arithmetic average gross discrete return (AAGDR) over the next year is 1.417293.

d.

The geometric average gross discrete return (GAGDR) over the next year is 1.161834.

e.

The median net discrete return (NDR) over the next year is 0.161834.

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