Bonds X and Y are issued by different companies, but they both pay a semi-annual coupon of 10% pa and they have the same face value ($100) and maturity (3 years).
The only difference is that bond X and Y's yields are 8 and 12% pa respectively. Which of the following statements is true?
Which of the following statements about book and market equity is NOT correct?
Some countries' interest rates are so low that they're zero.
If interest rates are 0% pa and are expected to stay at that level for the foreseeable future, what is the most that you would be prepared to pay a bank now if it offered to pay you $10 at the end of every year for the next 5 years?
In other words, what is the present value of five $10 payments at time 1, 2, 3, 4 and 5 if interest rates are 0% pa?
The covariance and correlation of two stocks X and Y's annual returns are calculated over a number of years. The units of the returns are in percent per annum ##(\% pa)##.
What are the units of the covariance ##(\sigma_{X,Y})## and correlation ##(\rho_{X,Y})## of returns respectively?
Hint: Visit Wikipedia to understand the difference between percentage points ##(\text{pp})## and percent ##(\%)##.
An equity index stands at 100 points and the one year equity futures price is 102.
The equity index is expected to have a dividend yield of 4% pa. Assume that investors are risk-neutral so their total required return on the shares is the same as the risk free Treasury bond yield which is 10% pa. Both are given as discrete effective annual rates.
Assuming that the equity index is fairly priced, an arbitrageur would recognise that the equity futures are:
Which of the following statements about the Basel 3 minimum capital requirements is NOT correct? Common equity tier 1 (CET1) comprises the highest quality components of capital that fully satisfy all of the following characteristics:
Which of the following statements about Macaulay duration is NOT correct? The Macaulay duration:
You are an equities analyst trying to value the equity of the Australian supermarket conglomerate Woolworths, with ticker WOW. In Australia, listed companies like Woolworths tend to pay dividends every 6 months. The payment around September is the final dividend and the payment around March is called the interim dividend. Both occur annually.
- Today is mid-November 2018.
- WOW's last final dividend of $0.50 was two months ago in mid-September 2018.
- WOW's last interim dividend of $0.43 was eight months ago in mid-March 2018.
- Judging by the dividend history and WOW's prospects, you judge that the growth rate in the dividends will be 3% pa forever.
- Assume that WOW's total cost of equity is 6.5% pa. All rates are quoted as nominal effective rates.
- The dividends are nominal cash flows and the inflation rate is 2.5% pa.
What should be the current share price of WOW?