**Question 155** inflation, real and nominal returns and cash flows, Loan, effective rate conversion

You are a banker about to grant a 2 year loan to a customer. The loan's principal and interest will be repaid in a single payment at maturity, sometimes called a zero-coupon loan, discount loan or bullet loan.

You require a **real** return of **6**% pa over the two years, given as an effective annual rate. Inflation is expected to be **2**% this year and **4**% next year, both given as effective annual rates.

You judge that the customer can afford to pay back $**1,000,000** in **2** years, given as a **nominal** cash flow. How much should you lend to her right now?

Which of the following statements about the weighted average cost of capital (WACC) is **NOT** correct?

The hardest and most important aspect of business project valuation is the estimation of the:

**Question 550** fully amortising loan, interest only loan, APR, no explanation

Many Australian home loans that are interest-only actually require payments to be made on a fully amortising basis after a number of years.

You decide to borrow $**600,000** from the bank at an interest rate of **4.25**% pa for 25 years. The payments will be **interest-only** for the first **10** years (t=0 to 10 years), then they will have to be paid on a **fully amortising** basis for the last **15** years (t=10 to 25 years).

Assuming that interest rates will remain constant, what will be your monthly payments for the next 10 years from now, and then the next 15 years after that? The answer options are given in the same order.

**Question 578** inflation, real and nominal returns and cash flows

Which of the following statements about inflation is **NOT** correct?

Which of the following statements about yield curves is **NOT** correct?

The standard deviation of monthly changes in the spot price of corn is **50** cents per bushel. The standard deviation of monthly changes in the futures price of corn is **40** cents per bushel. The correlation between the spot price of corn and the futures price of corn is **0.9**.

It is now March. A corn chip manufacturer is committed to buying **250,000** bushels of corn in May. The spot price of corn is **381** cents per bushel and the June futures price is **399** cents per bushel.

The corn chip manufacturer wants to use the June corn futures contracts to hedge his risk. Each futures contract is for the delivery of **5,000** bushels of corn. One bushel is about 127 metric tons.

How many corn futures should the corn chip manufacturer buy to hedge his risk? Round your answer to the nearest whole number of contracts. Remember to tail the hedge.

Itau Unibanco is a major listed bank in Brazil with a market capitalisation of equity equal to BRL **85.744** billion, EPS of **BRL 3.96** and **2.97** billion shares on issue.

Banco Bradesco is another major bank with total earnings of BRL **8.77** billion and **2.52** billion shares on issue.

Estimate Banco Bradesco's current share price using a price-earnings multiples approach assuming that Itau Unibanco is a comparable firm.

Note that BRL is the Brazilian Real, their currency. Figures sourced from Google Finance on the market close of the BVMF on 24/7/15.

Which Australian institution is in charge of monetary policy?

**Question 909** money market, bills

By convention, money market securities' yields are always quoted as: