Question 157 bill pricing, simple interest rate, no explanation
A 90-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 6% pa and there are 365 days in the year. What is its price?
A stock is expected to pay the following dividends:
Cash Flows of a Stock | ||||||
Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
Dividend ($) | 0 | 6 | 12 | 18 | 20 | ... |
After year 4, the dividend will grow in perpetuity at 5% pa. The required return of the stock is 10% pa. Both the growth rate and required return are given as effective annual rates.
What will be the price of the stock in 7 years (t = 7), just after the dividend at that time has been paid?
A very low-risk stock just paid its semi-annual dividend of $0.14, as it has for the last 5 years. You conservatively estimate that from now on the dividend will fall at a rate of 1% every 6 months.
If the stock currently sells for $3 per share, what must be its required total return as an effective annual rate?
If risk free government bonds are trading at a yield of 4% pa, given as an effective annual rate, would you consider buying or selling the stock?
The stock's required total return is:
Three important classes of investable risky assets are:
- Corporate debt which has low total risk,
- Real estate which has medium total risk,
- Equity which has high total risk.
Assume that the correlation between total returns on:
- Corporate debt and real estate is 0.1,
- Corporate debt and equity is 0.1,
- Real estate and equity is 0.5.
You are considering investing all of your wealth in one or more of these asset classes. Which portfolio will give the lowest total risk? You are restricted from shorting any of these assets. Disregard returns and the risk-return trade-off, pretend that you are only concerned with minimising risk.
Question 529 DDM, real and nominal returns and cash flows, inflation, real estate, no explanation
If housing rents are constrained from growing more than the maximum target inflation rate, and houses can be priced as a perpetuity of growing net rental cash flows, then what is the implication for house prices, all things remaining equal? Select the most correct answer.
Background: Since 1990, many central banks across the world have become 'inflation targeters'. They have adopted a policy of trying to keep inflation in a predictable narrow range, with the hope of encouraging long-term lending to fund more investment and maintain higher GDP growth.
Australia's central bank, the Reserve Bank of Australia (RBA), has specifically stated their inflation target range is between 2 and 3% pa.
Some Australian residential property market commentators suggest that because rental costs comprise a large part of the Australian consumer price index (CPI), rent costs across the nation cannot significantly exceed the maximum inflation target range of 3% pa without the prices of other goods growing by less than the target range for long periods, which is unlikely.
A company advertises an investment costing $1,000 which they say is underpriced. They say that it has an expected total return of 15% pa, but a required return of only 10% pa. Of the 15% pa total expected return, the dividend yield is expected to always be 7% pa and rest is the capital yield.
Assuming that the company's statements are correct, what is the NPV of buying the investment if the 15% total return lasts for the next 100 years (t=0 to 100), then reverts to 10% after that time? Also, what is the NPV of the investment if the 15% return lasts forever?
In both cases, assume that the required return of 10% remains constant, the dividends can only be re-invested at 10% pa and all returns are given as effective annual rates.
The answer choices below are given in the same order (15% for 100 years, and 15% forever):
Question 693 boot strapping zero coupon yield, forward interest rate, term structure of interest rates
Information about three risk free Government bonds is given in the table below.
Federal Treasury Bond Data | ||||
Maturity | Yield to maturity | Coupon rate | Face value | Price |
(years) | (pa, compounding semi-annually) | (pa, paid semi-annually) | ($) | ($) |
0.5 | 3% | 4% | 100 | 100.4926 |
1 | 4% | 4% | 100 | 100.0000 |
1.5 | 5% | 4% | 100 | 98.5720 |
Based on the above government bonds' yields to maturity, which of the below statements about the spot zero rates and forward zero rates is NOT correct?
Question 728 inflation, real and nominal returns and cash flows, income and capital returns, no explanation
Which of the following statements about gold is NOT correct? Assume that the gold price increases by inflation. Gold has a:
Question 792 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate, log-normal distribution, confidence interval
A risk manager has identified that their investment fund’s continuously compounded portfolio returns are normally distributed with a mean of 10% pa and a standard deviation of 40% pa. The fund’s portfolio is currently valued at $1 million. Assume that there is no estimation error in the above figures. To simplify your calculations, all answers below use 2.33 as an approximation for the normal inverse cumulative density function at 99%. All answers are rounded to the nearest dollar. Assume one month is 1/12 of a year. Which of the following statements is NOT correct?
Calculate Australia’s GDP over the 2016 calendar year using the below table:
Australian Gross Domestic Product Components | ||||
A$ billion, 2016 Calendar Year from 1 Jan 2016 to 31 Dec 2016 inclusive | ||||
Consumption | Investment | Government spending | Exports | Imports |
971 | 421 | 320 | 328 | 344 |
Source: ABS 5206.0 Australian National Accounts: National Income, Expenditure and Product. Table 3. Expenditure on Gross Domestic Product (GDP), Current prices.
Over the 2016 calendar year, Australia’s GDP was: