The security market line (SML) shows the relationship between beta and expected return.
Investment projects that plot above the SML would have:
A 90day $1 million Bank Accepted Bill (BAB) was bought for $990,000 and sold 30 days later for $996,000 (at t=30 days).
What was the total return, capital return and income return over the 30 days it was held?
Despite the fact that money market instruments such as bills are normally quoted with simple interest rates, please calculate your answers as compound interest rates, specifically, as effective 30day rates, which is how the below answer choices are listed.
##r_\text{total}##, ##r_\text{capital}##, ## r_\text{income}##
One method for calculating a firm's free cash flow (FFCF, or CFFA) is to ignore interest expense. That is, pretend that interest expense ##(IntExp)## is zero:
###\begin{aligned} FFCF &= (Rev  COGS  Depr  FC  IntExp)(1t_c) + Depr  CapEx \Delta NWC + IntExp \\ &= (Rev  COGS  Depr  FC  0)(1t_c) + Depr  CapEx \Delta NWC  0\\ \end{aligned}###
Question 444 investment decision, corporate financial decision theory
The investment decision primarily affects which part of a business?
Question 546 income and capital returns, interest only loan, no explanation
Which of the following statements about the capital and income returns of an interestonly loan is correct?
Assume that the yield curve (which shows total returns over different maturities) is flat and is not expected to change.
An interestonly loan's expected:
Question 703 utility, risk aversion, utility function, gamble
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Each person has $500 of initial wealth. A coin toss game is offered to each person at a casino where the player can win or lose $500. Each player can flip a coin and if they flip heads, they receive $500. If they flip tails then they will lose $500. Which of the following statements is NOT correct?
Use the below information to value a levered company with constant annual perpetual cash flows from assets. The next cash flow will be generated in one year from now, so a perpetuity can be used to value this firm. Both the operating and firm free cash flows are constant (but not equal to each other).
Data on a Levered Firm with Perpetual Cash Flows  
Item abbreviation  Value  Item full name 
##\text{OFCF}##  $48.5m  Operating free cash flow 
##\text{FFCF or CFFA}##  $50m  Firm free cash flow or cash flow from assets 
##g##  0% pa  Growth rate of OFCF and FFCF 
##\text{WACC}_\text{BeforeTax}##  10% pa  Weighted average cost of capital before tax 
##\text{WACC}_\text{AfterTax}##  9.7% pa  Weighted average cost of capital after tax 
##r_\text{D}##  5% pa  Cost of debt 
##r_\text{EL}##  11.25% pa  Cost of levered equity 
##D/V_L##  20% pa  Debt to assets ratio, where the asset value includes tax shields 
##t_c##  30%  Corporate tax rate 
What is the value of the levered firm including interest tax shields?
Question 785 fixed for floating interest rate swap, nonintermediated swap
The below table summarises the borrowing costs confronting two companies A and B.
Bond Market Yields  
Fixed Yield to Maturity (%pa)  Floating Yield (%pa)  
Firm A  3  L  0.4  
Firm B  5  L + 1  
Firm A wishes to borrow at a floating rate and Firm B wishes to borrow at a fixed rate. Design a nonintermediated swap that benefits firm A only. What will be the swap rate?
Below is a table of the 'Riskweights for residential mortgages' as shown in APRA Basel 3 Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk January 2013.
LVR (%) 
Standard eligible mortgages 
Nonstandard eligible mortgages 


Riskweight (no mortgage insurance) % 
Riskweight (with at least 40% of the mortgage insured by an acceptable LMI) % 
Riskweight (no mortgage insurance) % 
Riskweight (with at least 40% of the mortgage insured by an acceptable LMI) % 
0 – 60 
35 
35 
50 
35 
60.01 – 80 
35 
35 
75 
50 
80.01 – 90 
50 
35 
100 
75 
90.01 – 100 
75 
50 
100 
75 
> 100.01 
100 
75 
100 
100 
A bank is considering granting a home loan to a man to buy a house worth $1.25 million using his own funds and the loan. The loan would be standard with no lenders mortgage insurance (LMI) and an LVR of 80%.
What is the minimum regulatory capital that the bank requires to grant the home loan under the Basel 3 Accord? Ignore the capital conservation buffer.