For a price of $100, Andrea will sell you a 2 year bond paying annual coupons of 10% pa. The face value of the bond is $100. Other bonds with the same risk, maturity and coupon characteristics trade at a yield of 6% pa.
When using the dividend discount model to price a stock:
### p_{0} = \frac{d_1}{r - g} ###
The growth rate of dividends (g):
Question 405 DDM, income and capital returns, no explanation
The perpetuity with growth formula is:
###P_0= \dfrac{C_1}{r-g}###
Which of the following is NOT equal to the total required return (r)?
Question 413 CFFA, interest tax shield, depreciation tax shield
There are many ways to calculate a firm's free cash flow (FFCF), also called cash flow from assets (CFFA).
One method is to use the following formulas to transform net income (NI) into FFCF including interest and depreciation tax shields:
###FFCF=NI + Depr - CapEx -ΔNWC + IntExp###
###NI=(Rev - COGS - Depr - FC - IntExp).(1-t_c )###
Another popular method is to use EBITDA rather than net income. EBITDA is defined as:
###EBITDA=Rev - COGS - FC###
One of the below formulas correctly calculates FFCF from EBITDA, including interest and depreciation tax shields, giving an identical answer to that above. Which formula is correct?
Mr Blue, Miss Red and Mrs Green are people with different utility functions. Which of the statements about the 3 utility functions is NOT correct?
Question 704 utility, risk aversion, utility function, gamble
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Each person has $256 of initial wealth. A coin toss game is offered to each person at a casino where the player can win or lose $256. Each player can flip a coin and if they flip heads, they receive $256. If they flip tails then they will lose $256. Which of the following statements is NOT correct?
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Which of the following statements is NOT correct?
Question 881 Nixon Shock, Bretton Woods, foreign exchange rate, foreign exchange system history, no explanation
In the ‘Nixon Shock’ on August 15, 1971, the United States government:
A 90 day bank bill has a face value of $100,000.
Investor A bought the bill when it was first issued at a simple yield to maturity of 3% pa and sold it 20 days later to Investor B who expected to earn a simple yield to maturity of 5% pa. Investor B held it until maturity.
Which of the following statements is NOT correct?