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Question 105  NPV, risk, market efficiency

A person is thinking about borrowing $100 from the bank at 7% pa and investing it in shares with an expected return of 10% pa. One year later the person intends to sell the shares and pay back the loan in full. Both the loan and the shares are fairly priced.

What is the Net Present Value (NPV) of this one year investment? Note that you are asked to find the present value (##V_0##), not the value in one year (##V_1##).



Question 151  income and capital returns

A share was bought for $30 (at t=0) and paid its annual dividend of $6 one year later (at t=1).

Just after the dividend was paid, the share price fell to $27 (at t=1). What were the total, capital and income returns given as effective annual rates?

The choices are given in the same order:

##r_\text{total}## , ##r_\text{capital}## , ##r_\text{dividend}##.



Question 210  real estate, inflation, real and nominal returns and cash flows, income and capital returns

Assume that the Gordon Growth Model (same as the dividend discount model or perpetuity with growth formula) is an appropriate method to value real estate.

An old rule of thumb in the real estate industry is that properties should yield a 5% pa rental return. Some investors also regard property to be as risky as the stock market, therefore property is thought to have a required total return of 9% pa which is the average total return on the stock market including dividends.

Assume that all returns are effective annual rates and they are nominal (not reduced by inflation). Inflation is expected to be 2% pa.

You're considering purchasing an investment property which has a rental yield of 5% pa and you expect it to have the same risk as the stock market. Select the most correct statement about this property.



Question 314  foreign exchange rate, American and European terms

If the USD appreciates against the AUD, the American terms quote of the AUD will or ?



Question 387  real option, option

One of the reasons why firms may not begin projects with relatively small positive net present values (NPV's) is because they wish to maximise the value of their:



Question 624  franking credit, personal tax on dividends, imputation tax system, no explanation

Which of the following statements about Australian franking credits is NOT correct? Franking credits:



Question 742  price gains and returns over time, no explanation

For an asset's price to quintuple (be five times as big, say from $1 to $5) every 5 years, what must be its effective annual capital return?



Question 757  bond pricing, capital raising, no explanation

A firm wishes to raise $50 million now. They will issue 5% pa semi-annual coupon bonds that will mature in 10 years and have a face value of $100 each. Bond yields are 5% pa, given as an APR compounding every 6 months, and the yield curve is flat.

How many bonds should the firm issue?



Question 906  effective rate, return types, net discrete return, return distribution, price gains and returns over time

For an asset's price to double from say $1 to $2 in one year, what must its effective annual return be? Note that an effective annual return is also called a net discrete return per annum. If the price now is ##P_0## and the price in one year is ##P_1## then the effective annul return over the next year is:

###r_\text{effective annual} = \dfrac{P_1 - P_0}{P_0} = \text{NDR}_\text{annual}###



Question 973  foreign exchange rate, monetary policy, no explanation

Suppose the market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting. The current exchange rate is 0.8 USD per AUD.

Then unexpectedly, the RBA announce that they will leave the policy rate unchanged due to increasing unemployment and fears of a potential recession.

What do you expect to happen to Australia's exchange rate on the day when the surprise announcement is made? The Australian dollar is likely to: