Final Revision

Question 1

Calculate Price of Warrant

Answer 1

Value of American Call option / (1+ % increase in n.o. shares if warrant is exercised ) x number of new shares created by warrant

Question 2

How many number of future contracts are needed to hedge?

Answer 2

(Value of fund * Beta) / Notional futures value

Question 3

Price Elasticity Calculation

Answer 3

Change in quantity demanded / Change in Price

Question 4

autonomous expenditure

Answer 4

the certain level of consumption households must spend to survive

Question 5

Keynesian Economic Theory

Answer 5

encouraged government spending to stimulate stagnating economies

Question 6

Keynesian multiplier

Answer 6

increased income leads to larger increase in consumption

Question 7

Multiplier calculation

Answer 7

1 / 1 - Marginal Propensity to Consume

Question 8

What does the Philips Curve show

Answer 8

• relationship between unemployment and inflation
• as inflation decreases unemployment increases in the short term, no relation in long term

Question 9

How to calculate the forward exchange rate assuming interest parity

Answer 9

1. Add the interest to each of the rates
2. Divide the rates with each other to find out how much 1 of the currency is worth

Question 10

Modified duration Calculation

Answer 10

Macaulay duration / 1+ Interest Rates

Question 11

Treynor Measure

Answer 11

Fund return - Risk Free Rate / Beta

Question 12

Sharpe Ratio

Answer 12

Fund return - Risk Free Rate / St. Dev.

Question 13

CAPM Beta

Answer 13

Covariance / Variance of Market

Question 14

Annual depreciation

Answer 14

1 - n√ expected residual value / original cost

Question 15

NBV

Answer 15

cost - depreciation

Question 16

operating profits

Answer 16

profit before interest and tax

Question 17

if price > par then

Answer 17

coupon > yield

Question 18

Annuity Formula

Answer 18

PV = CF x 1/r x (1 - 1 / (1+r)^n)

Question 19

PV of perpetuity

Answer 19

£x / r