You're trying to save enough money to buy your first car which costs $2,500. You can save $100 at the end of each month starting from now. You currently have no money at all. You just opened a bank account with an interest rate of 6% pa payable monthly.
How many months will it take to save enough money to buy the car? Assume that the price of the car will stay the same over time.
Question 143 bond pricing, zero coupon bond, term structure of interest rates, forward interest rate
An Australian company just issued two bonds:
- A 6-month zero coupon bond at a yield of 6% pa, and
- A 12 month zero coupon bond at a yield of 7% pa.
What is the company's forward rate from 6 to 12 months? Give your answer as an APR compounding every 6 months, which is how the above bond yields are quoted.
Question 157 bill pricing, simple interest rate, no explanation
A 90-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 6% pa and there are 365 days in the year. What is its price?
Unrestricted negative gearing is allowed in Australia, New Zealand and Japan. Negative gearing laws allow income losses on investment properties to be deducted from a tax-payer's pre-tax personal income. Negatively geared investors benefit from this tax advantage. They also hope to benefit from capital gains which exceed the income losses.
For example, a property investor buys an apartment funded by an interest only mortgage loan. Interest expense is $2,000 per month. The rental payments received from the tenant living on the property are $1,500 per month. The investor can deduct this income loss of $500 per month from his pre-tax personal income. If his personal marginal tax rate is 46.5%, this saves $232.5 per month in personal income tax.
The advantage of negative gearing is an example of the benefits of:
A share just paid its semi-annual dividend of $5. The dividend is expected to grow at 1% every 6 months forever. This 1% growth rate is an effective 6 month rate.
Therefore the next dividend will be $5.05 in six months. The required return of the stock 8% pa, given as an effective annual rate.
What is the price of the share now?
A firm plans to issue equity and use the cash raised to pay off its debt. No assets will be bought or sold. Ignore the costs of financial distress.
Which of the following statements is NOT correct, all things remaining equal?
A man has taken a day off from his casual painting job to relax.
It's the end of the day and he's thinking about the hours that he could have spent working (in the past) which are now:
Question 572 bond pricing, zero coupon bond, term structure of interest rates, expectations hypothesis, forward interest rate, yield curve
In the below term structure of interest rates equation, all rates are effective annual yields and the numbers in subscript represent the years that the yields are measured over:
###(1+r_{0-3})^3 = (1+r_{0-1})(1+r_{1-2})(1+r_{2-3}) ###
Which of the following statements is NOT correct?
To value a business's assets, the free cash flow of the firm (FCFF, also called CFFA) needs to be calculated. This requires figures from the firm's income statement and balance sheet. For what figures is the balance sheet needed? Note that the balance sheet is sometimes also called the statement of financial position.
In February a company sold one December 40,000 pound (about 18 metric tons) lean hog futures contract. It closed out its position in May.
The spot price was $0.68 per pound in February. The December futures price was $0.70 per pound when the trader entered into the contract in February, $0.60 when he closed out his position in May, and $0.55 when the contract matured in December.
What was the total profit?