Fight Finance

A three year corporate bond yields 12% pa with a coupon rate of 10% pa, paid semi-annually.

Find the effective six month yield, effective annual yield and the effective daily yield. Assume that each month has 30 days and that there are 360 days in a year.

All answers are given in the same order:

##r_\text{eff semi-annual}##, ##r_\text{eff yearly}##, ##r_\text{eff daily}##.

A share was bought for $10 (at t=0) and paid its annual dividend of $0.50 one year later (at t=1). Just after the dividend was paid, the share price was $11 (at t=1).

What was the total return, capital return and income return? Calculate your answers as effective annual rates. The choices are given in the same order:

##r_\text{total}##, ##r_\text{capital}##, ##r_\text{dividend}##.

Find Candys Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.

Note: all figures are given in millions of dollars ($m).

Details of two different types of light bulbs are given below:

• Low-energy light bulbs cost $3.50, have a life of nine years, and use about $1.60 of electricity a year, paid at the end of each year.
• Conventional light bulbs cost only $0.50, but last only about a year and use about $6.60 of energy a year, paid at the end of each year.

The real discount rate is 5%, given as an effective annual rate. Assume that all cash flows are real. The inflation rate is 3% given as an effective annual rate.

Find the Equivalent Annual Cost (EAC) of the low-energy and conventional light bulbs. The below choices are listed in that order.

Stocks in the United States usually pay quarterly dividends. For example, the software giant Microsoft paid a $0.23 dividend every quarter over the 2013 financial year and plans to pay a $0.28 dividend every quarter over the 2014 financial year.

Using the dividend discount model and net present value techniques, calculate the stock price of Microsoft assuming that:

• The time now is the beginning of July 2014. The next dividend of $0.28 will be received in 3 months (end of September 2014), with another 3 quarterly payments of $0.28 after this (end of December 2014, March 2015 and June 2015).
• The quarterly dividend will increase by 2.5% every year, but each quarterly dividend over the year will be equal. So each quarterly dividend paid in the financial year beginning in September 2015 will be $ 0.287 ##(=0.28×(1+0.025)^1)##, with the last at the end of June 2016. In the next financial year beginning in September 2016 each quarterly dividend will be $0.294175 ##(=0.28×(1+0.025)^2)##, with the last at the end of June 2017, and so on forever.
• The total required return on equity is 6% pa.
• The required return and growth rate are given as effective annual rates.
• Dividend payment dates and ex-dividend dates are at the same time.
• Remember that there are 4 quarters in a year and 3 months in a quarter.

What is the current stock price?

A managed fund charges fees based on the amount of money that you keep with them. The fee is 2% of the end-of-year amount, paid at the end of every year.

This fee is charged regardless of whether the fund makes gains or losses on your money.

The fund offers to invest your money in shares which have an expected return of 10% pa before fees.

You are thinking of investing $100,000 in the fund and keeping it there for 40 years when you plan to retire.

How much money do you expect to have in the fund in 40 years? Also, what is the future value of the fees that the fund expects to earn from you? Give both amounts as future values in 40 years. Assume that:

• The fund has no private information.
• Markets are weak and semi-strong form efficient.
• The fund's transaction costs are negligible.
• The cost and trouble of investing your money in shares by yourself, without the managed fund, is negligible.
• The fund invests its fees in the same companies as it invests your funds in, but with no fees.

The below answer choices list your expected wealth in 40 years and then the fund's expected wealth in 40 years.

A small private company has a single shareholder. This year the firm earned a $100 profit before tax. All of the firm's after tax profits will be paid out as dividends to the owner.

The corporate tax rate is 30% and the sole shareholder's personal marginal tax rate is 45%.

The Australian imputation tax system applies because the company generates all of its income in Australia and pays corporate tax to the Australian Tax Office. Therefore all of the company's dividends are fully franked. The sole shareholder is an Australian for tax purposes and can therefore use the franking credits to offset his personal income tax liability.

What will be the personal tax payable by the shareholder and the corporate tax payable by the company?

Which one of the below option and futures contracts gives the possibility of potentially unlimited gains?

A trader sells one crude oil European style put option contract on the CME expiring in one year with an exercise price of $44 per barrel for a price of $6.64. The crude oil spot price is $40.33. If the trader doesn’t close out her contract before maturity, then at maturity she will have the:

Here is a table of stock prices and returns. Which of the statements below the table is NOT correct?