A share just paid its semi-annual dividend of $10. The dividend is expected to grow at 2% every 6 months forever. This 2% growth rate is an effective 6 month rate. Therefore the next dividend will be $10.20 in six months. The required return of the stock 10% pa, given as an effective annual rate.
What is the price of the share now?
Question 382 Merton model of corporate debt, real option, option
In the Merton model of corporate debt, buying a levered company's shares is equivalent to:
Question 498 NPV, Annuity, perpetuity with growth, multi stage growth model
A business project is expected to cost $100 now (t=0), then pay $10 at the end of the third (t=3), fourth, fifth and sixth years, and then grow by 5% pa every year forever. So the cash flow will be $10.5 at the end of the seventh year (t=7), then $11.025 at the end of the eighth year (t=8) and so on perpetually. The total required return is 10℅ pa.
Which of the following formulas will NOT give the correct net present value of the project?
Question 523 income and capital returns, real and nominal returns and cash flows, inflation
A low-growth mature stock has an expected nominal total return of 6% pa and nominal capital return of 2% pa. Inflation is expected to be 3% pa.
All of the above are effective nominal rates and investors believe that they will stay the same in perpetuity.
What are the stock's expected real total, capital and income returns?
The answer choices below are given in the same order.
You have $100,000 in the bank. The bank pays interest at 10% pa, given as an effective annual rate.
You wish to consume twice as much now (t=0) as in one year (t=1) and have nothing left in the bank at the end.
How much can you consume at time zero and one? The answer choices are given in the same order.
An American wishes to convert USD 1 million to Australian dollars (AUD). The exchange rate is 0.8 USD per AUD. How much is the USD 1 million worth in AUD?
Question 604 inflation, real and nominal returns and cash flows
Apples and oranges currently cost $1 each. Inflation is 5% pa, and apples and oranges are equally affected by this inflation rate. Note that when payments are not specified as real, as in this question, they're conventionally assumed to be nominal.
Which of the following statements is NOT correct?
Question 877 arithmetic and geometric averages, utility, utility function
Gross discrete returns in different states of the world are presented in the table below. A gross discrete return is defined as ##P_1/P_0##, where ##P_0## is the price now and ##P_1## is the expected price in the future. An investor can purchase only a single asset, A, B, C or D. Assume that a portfolio of assets is not possible.
Gross Discrete Returns | ||
In Different States of the World | ||
Investment | World states (probability) | |
asset | Good (50%) | Bad (50%) |
A | 2 | 0.5 |
B | 1.1 | 0.9 |
C | 1.1 | 0.95 |
D | 1.01 | 1.01 |
Which of the following statements about the different assets is NOT correct? Asset: