For a price of $95, Sherylanne will sell you a share which is expected to pay its first dividend of $10 in 7 years (t=7), and will continue to pay the same $10 dividend every year after that forever.

The required return of the stock is 10% pa.

A three year bond has a fixed coupon rate of 12% pa, paid semi-annually. The bond's yield is currently 6% pa. The face value is $100. What is its price?

Acquirer firm plans to launch a takeover of Target firm. The firms operate in different industries and the CEO's rationale for the merger is to increase diversification and thereby decrease risk. The deal is not expected to create any synergies. An **80**% scrip and **20**% cash offer will be made that pays the fair price for the target's shares. The cash will be paid out of the firms' cash holdings, no new debt or equity will be raised.

Firms Involved in the Takeover | ||

Acquirer | Target | |

Assets ($m) | 6,000 | 700 |

Debt ($m) | 4,800 | 400 |

Share price ($) | 40 | 20 |

Number of shares (m) | 30 | 15 |

Ignore transaction costs and fees. Assume that the firms' debt and equity are fairly priced, and that each firms' debts' risk, yield and values remain constant. The acquisition is planned to occur immediately, so ignore the time value of money.

Calculate the merged firm's share price and total number of shares after the takeover has been completed.

**Question 699** utility, risk aversion, utility function, gamble

Mr Blue, Miss Red and Mrs Green are people with different utility functions.

Each person has $50 of initial wealth. A coin toss game is offered to each person at a casino where the player can win or lose $50. Each player can flip a coin and if they flip heads, they receive $50. If they flip tails then they will lose $50. Which of the following statements is **NOT** correct?

**Question 884** monetary policy, impossible trinity, foreign exchange rate, no explanation

According to the impossible trinity, a currency can only have two of these three desirable traits: be **fixed** against the USD; **convertible** to and from USD for traders and investors so there are open goods, services and capital markets; and allow **independent** monetary policy set by the country’s central bank, independent of the US central bank.

Which of the following exchange rate regimes sacrifices fixing the exchange rate to the USD? In other words, which regime uses a floating exchange rate?

A New Zealand lady wants to calculate how many New Zealand Dollars (NZD) she needs to buy a 1 million Australian dollar (AUD) house in Sydney, Australia. The exchange rate is **0.69** USD per NZD and **0.72** USD per AUD. What is the AUD 1 million equivalent to in NZD?

Assume that the market portfolio has a duration of **15** years and an individual stock has a duration of **20** years.

What can you say about the stock's beta with respect to the market portfolio? The stock's beta is likely to be: