What is the Internal Rate of Return (IRR) of the project detailed in the table below?
Assume that the cash flows shown in the table are paid all at once at the given point in time. All answers are given as effective annual rates.
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -100 |
| 1 | 0 |
| 2 | 121 |
The following is the Dividend Discount Model (DDM) used to price stocks:
###P_0=\dfrac{C_1}{r-g}###
If the assumptions of the DDM hold and the stock is fairly priced, which one of the following statements is NOT correct? The long term expected:
You're trying to save enough money for a deposit to buy a house. You want to buy a house worth $400,000 and the bank requires a 20% deposit ($80,000) before it will give you a loan for the other $320,000 that you need.
You currently have no savings, but you just started working and can save $2,000 per month, with the first payment in one month from now. Bank interest rates on savings accounts are 4.8% pa with interest paid monthly and interest rates are not expected to change.
How long will it take to save the $80,000 deposit? Round your answer up to the nearest month.
Question 327 bill pricing, simple interest rate, no explanation
On 27/09/13, three month Swiss government bills traded at a yield of -0.2%, given as a simple annual yield. That is, interest rates were negative.
If the face value of one of these 90 day bills is CHF1,000,000 (CHF represents Swiss Francs, the Swiss currency), what is the price of one of these bills?
Your firm's research scientists can begin an exciting new project at a cost of $10m now, after which there’s a:
- 70% chance that cash flows will be $1m per year forever, starting in 5 years (t=5). This is the A state of the world.
- 20% chance that cash flows will be $3m per year forever, starting in 5 years (t=5). This is the B state of the world.
- 10% chance of a major break through in which case the cash flows will be $20m per year forever starting in 5 years (t=5), or instead, the project can be expanded by investing another $10m (at t=5) which is expected to give cash flows of $60m per year forever, starting at year 9 (t=9). Note that the perpetual cash flows are either the $20m from year 4 onwards, or the $60m from year 9 onwards after the additional $10m year 5 investment, but not both. This is the C state of the world.
The firm's cost of capital is 10% pa.
What's the present value (at t=0) of the option to expand in year 5?
Question 740 real and nominal returns and cash flows, DDM, inflation
Taking inflation into account when using the DDM can be hard. Which of the following formulas will NOT give a company's current stock price ##(P_0)##? Assume that the annual dividend was just paid ##(C_0)##, and the next dividend will be paid in one year ##(C_1)##.
Question 803 capital raising, rights issue, initial public offering, on market repurchase, no explanation
Which one of the following capital raisings or payouts involve the sale of shares to existing shareholders only?
Question 831 option, American option, no explanation
Which of the following statements about American-style options is NOT correct? American-style:
Being long a call and short a put which have the same exercise prices and underlying stock is equivalent to being:
A Brazilian lady wishes to convert 1 million Brazilian Real (BRL) into Chinese Renminbi (RMB, also called the Yuan or CNY). The exchange rate is 3.42 BRL per USD and 6.27 RMB per USD. How much is the BRL 1 million worth in RMB?