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Question 115 capital structure, leverage, WACC

A firm has a debt-to-assets ratio of 50%. The firm then issues a large amount of debt to raise money for new projects of similar market risk to the company's existing projects. Assume a classical tax system. Which statement is correct?

Question 263 DDM, income and capital returns

A company's shares just paid their annual dividend of $2 each.

The stock price is now $40 (just after the dividend payment). The annual dividend is expected to grow by 3% every year forever. The assumptions of the dividend discount model are valid for this company.

What do you expect the effective annual dividend yield to be in 3 years (dividend yield from t=3 to t=4)?

Question 428 takeover

Question 509 bond pricing

Calculate the price of a newly issued ten year bond with a face value of $100, a yield of 8% pa and a fixed coupon rate of 6% pa, paid annually. So there's only one coupon per year, paid in arrears every year.

Question 512 capital budgeting, CFFA

Find the cash flow from assets (CFFA) of the following project.

Project Data
Project life	2 years
Initial investment in equipment	$6m
Depreciation of equipment per year for tax purposes	$1m
Unit sales per year	4m
Sale price per unit	$8
Variable cost per unit	$3
Fixed costs per year, paid at the end of each year	$1.5m
Tax rate	30%

Note 1: The equipment will have a book value of $4m at the end of the project for tax purposes. However, the equipment is expected to fetch $0.9 million when it is sold at t=2.

Note 2: Due to the project, the firm will have to purchase $0.8m of inventory initially, which it will sell at t=1. The firm will buy another $0.8m at t=1 and sell it all again at t=2 with zero inventory left. The project will have no effect on the firm's current liabilities.

Find the project's CFFA at time zero, one and two. Answers are given in millions of dollars ($m).

Question 540 APR, effective rate, no explanation

Which one of the below statements about effective rates and annualised percentage rates (APR's) is NOT correct?

Question 559 variance, standard deviation, covariance, correlation

Which of the following statements about standard statistical mathematics notation is NOT correct?

Question 833 option, delta, theta, standard deviation, no explanation

Which of the following statements about an option (either a call or put) and its underlying stock is NOT correct?

(a) The option’s expected future continuously compounded returns are always more than or equal to the underlying stock’s expected future continuously compounded returns.

(b) The option’s standard deviation of dollar price changes is always less than or equal to the underlying stock’s standard deviation of dollar price changes.

(c) The option’s standard deviation of continuously compounded returns are always less than or equal to the underlying stock’s standard deviation of continuously compounded returns.

(d) As time elapses and the maturity date of an option approaches, its price will fall, all other things remaining equal.

(e) If the underlying stock’s price rises by $0.01, the call option’s price will rise by less than $0.01 and the put option’s price will fall by less than $0.01.

Question 888 foreign exchange rate, speculation, no explanation

The current Australian exchange rate is 0.8 USD per AUD.

If you think that the AUD will depreciate against the USD, contrary to the rest of the market, how could you profit? Right now you should:

Question 892 foreign exchange reserve, foreign exchange rate, no explanation

The Chinese central bank has the largest amount of foreign currency reserves.

What could the large amounts of foreign exchange reserves held by the Chinese government be used for in a currency crisis? China's currency is called the Renminbi (RMB) or Yuan (CNY). In a Chinese currency crisis the Chinese government is likely to use its FX reserves to: