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Question 11  bond pricing

For a price of $100, Vera will sell you a 2 year bond paying semi-annual coupons of 10% pa. The face value of the bond is $100. Other bonds with similar risk, maturity and coupon characteristics trade at a yield of 8% pa.

Would you like to her bond or politely ?

Question 67  CFFA, interest tax shield

Here are the Net Income (NI) and Cash Flow From Assets (CFFA) equations:


###CFFA=NI+Depr-CapEx - \varDelta NWC+IntExp###

What is the formula for calculating annual interest expense (IntExp) which is used in the equations above?

Select one of the following answers. Note that D is the value of debt which is constant through time, and ##r_D## is the cost of debt.

Question 229  bond pricing

An investor bought two fixed-coupon bonds issued by the same company, a zero-coupon bond and a 7% pa semi-annual coupon bond. Both bonds have a face value of $1,000, mature in 10 years, and had a yield at the time of purchase of 8% pa.

A few years later, yields fell to 6% pa. Which of the following statements is correct? Note that a capital gain is an increase in price.

Question 310  foreign exchange rate

Is it possible for all countries' exchange rates to appreciate by 5% in the same year, including the USD? or ?

Question 322  foreign exchange rate, monetary policy, American and European terms

The market expects the Reserve Bank of Australia (RBA) to decrease the policy rate by 25 basis points at their next meeting.

Then unexpectedly, the RBA announce that they will decrease the policy rate by 50 basis points due to fears of a recession and deflation.

What do you expect to happen to Australia's exchange rate? The Australian dollar will:

Question 471  risk, accounting ratio

High risk firms in danger of bankruptcy tend to have:

Question 566  capital structure, capital raising, rights issue, on market repurchase, dividend, stock split, bonus issue

A company's share price fell by 20% and its number of shares rose by 25%. Assume that there are no taxes, no signalling effects and no transaction costs.

Which one of the following corporate events may have happened?

Question 660  fully amortising loan, interest only loan, APR

How much more can you borrow using an interest-only loan compared to a 25-year fully amortising loan if interest rates are 6% pa compounding per month and are not expected to change? If it makes it easier, assume that you can afford to pay $2,000 per month on either loan. Express your answer as a proportional increase using the following formula:

###\text{Proportional Increase} = \dfrac{V_\text{0,interest only}}{V_\text{0,fully amortising}} - 1###

Question 781  NPV, IRR, pay back period

You're considering a business project which costs $11m now and is expected to pay a single cash flow of $11m in one year. So you pay $11m now, then one year later you receive $11m.

Assume that the initial $11m cost is funded using the your firm's existing cash so no new equity or debt will be raised. The cost of capital is 10% pa.

Which of the following statements about the net present value (NPV), internal rate of return (IRR) and payback period is NOT correct?

Question 1004  CFFA, WACC, interest tax shield, DDM

Use the below information to value a mature levered company with growing annual perpetual cash flows and a constant debt-to-assets ratio. The next cash flow will be generated in one year from now, so a perpetuity can be used to value this firm. The firm's debt funding comprises annual fixed coupon bonds that all have the same seniority and coupon rate. When these bonds mature, new bonds will be re-issued, and so on in perpetuity. The yield curve is flat.

Data on a Levered Firm with Perpetual Cash Flows
Item abbreviation Value Item full name
##\text{OFCF}_1## $12.5m Operating free cash flow at time 1
##\text{FFCF}_1 \text{ or }\text{CFFA}_1## $14m Firm free cash flow or cash flow from assets at time 1
##\text{EFCF}_1## $11m Equity free cash flow at time 1
##\text{BondCoupons}_1## $1.2m Bond coupons paid to debt holders at time 1
##g## 2% pa Growth rate of OFCF, FFCF, EFCF and Debt cash flow
##\text{WACC}_\text{BeforeTax}## 9% pa Weighted average cost of capital before tax
##\text{WACC}_\text{AfterTax}## 8.25% pa Weighted average cost of capital after tax
##r_\text{D}## 5% pa Bond yield
##r_\text{EL}## 13% pa Cost or required return of levered equity
##D/V_L## 50% pa Debt to assets ratio, where the asset value includes tax shields
##n_\text{shares}## 1m Number of shares
##t_c## 30% Corporate tax rate


Which of the following statements is NOT correct?