Specimen exam

Question 1

How do you calculate the Nominal interest yield of a bond?

Answer 1

Coupon/Current (Market) price

Question 2

How do you calculate the nominal redemption yield?

Answer 2

(C+100-P)/P

Question 3

What’s the formula for ex-ante redemption yield?

Answer 3

((1+R)/(1+Pi))-1

• Pi= expected inflation
• R= nominal redemption yield

Question 4

What is The fisher equation?

Answer 4

R = (1+r)(1+Pi) - 1

• Pi = Exp. inflation
• r = real ex ante redemption rate

Question 5

How do you calculate the return on a share in year x?

Answer 5

(Dx+1/Px) + (D growth)

Question 6

How do you calculate the expected share price of year x+1?

Answer 6

Px * (1+D growth decimal)

Question 7

What is an example of earnings per share?

Answer 7

Dividend per share

Question 8

What is the formula for P/E ratio?

Answer 8

-Share price/EPS

Question 9

What is the formula for dividend cover?

Answer 9

Profit per share/Dividend paid out per share

Question 10

What can you discuss about the 2018 MIFID2 regulations

Answer 10

• Formerly sell side brokers allowed to bundle research into fees
• After MIFID, bundling was banned
• Funds must pay from revenues or charges to clients

Question 11

Why is a well run stock exchange important

Answer 11

• Firms can find funds and grow
• efficient allocation of capital
• Secondary markets benefit shareholders
• Status and publicity
• Mergers
• Improves corporate behaviour

Question 12

What’s the formula for real rate of return?

Answer 12

((1+nominal rate)/(1+inflation rate)) - 1

Question 13

For a zero coupon bond, the spot rate is equal to the:

Answer 13

Redemption yield