For certain shares, the forward-looking Price-Earnings Ratio (##P_0/EPS_1##) is equal to the inverse of the share's total expected return (##1/r_\text{total}##). For what shares is this true?
Use the general accounting definition of 'payout ratio' which is dividends per share (DPS) divided by earnings per share (EPS) and assume that all cash flows, earnings and rates are real rather than nominal.
A company's forward-looking PE ratio will be the inverse of its total expected return on equity when it has a:
What is the net present value (NPV) of undertaking a full-time Australian undergraduate business degree as an Australian citizen? Only include the cash flows over the duration of the degree, ignore any benefits or costs of the degree after it's completed.
Assume the following:
- The degree takes 3 years to complete and all students pass all subjects.
- There are 2 semesters per year and 4 subjects per semester.
- University fees per subject per semester are $1,277, paid at the start of each semester. Fees are expected to remain constant in real terms for the next 3 years.
- There are 52 weeks per year.
- The first semester is just about to start (t=0). The first semester lasts for 19 weeks (t=0 to 19).
- The second semester starts immediately afterwards (t=19) and lasts for another 19 weeks (t=19 to 38).
- The summer holidays begin after the second semester ends and last for 14 weeks (t=38 to 52). Then the first semester begins the next year, and so on.
- Working full time at the grocery store instead of studying full-time pays $20/hr and you can work 35 hours per week. Wages are paid at the end of each week and are expected to remain constant in real terms.
- Full-time students can work full-time during the summer holiday at the grocery store for the same rate of $20/hr for 35 hours per week.
- The discount rate is 9.8% pa. All rates and cash flows are real. Inflation is expected to be 3% pa. All rates are effective annual.
The NPV of costs from undertaking the university degree is:
Which of the following is the least useful method or model to calculate the value of a real option in a project?
Some financially minded people insist on a prenuptial agreement before committing to marry their partner. This agreement states how the couple's assets should be divided in case they divorce. Prenuptial agreements are designed to give the richer partner more of the couples' assets if they divorce, thus maximising the richer partner's:
Acquirer firm plans to launch a takeover of Target firm. The deal is expected to create a present value of synergies totaling $105 million. A scrip offer will be made that pays the fair price for the target's shares plus 75% of the total synergy value.
| Firms Involved in the Takeover | ||
| Acquirer | Target | |
| Assets ($m) | 6,000 | 700 |
| Debt ($m) | 4,800 | 400 |
| Share price ($) | 40 | 20 |
| Number of shares (m) | 30 | 15 |
Ignore transaction costs and fees. Assume that the firms' debt and equity are fairly priced, and that each firms' debts' risk, yield and values remain constant. The acquisition is planned to occur immediately, so ignore the time value of money.
Calculate the merged firm's share price and total number of shares after the takeover has been completed.
Question 444 investment decision, corporate financial decision theory
The investment decision primarily affects which part of a business?
The perpetuity with growth equation is:
###P_0=\dfrac{C_1}{r-g}###
Which of the following is NOT equal to the expected capital return as an effective annual rate?
A trader buys 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:
Question 776 market efficiency, systematic and idiosyncratic risk, beta, income and capital returns
Which of the following statements about returns is NOT correct? A stock's:
Question 850 gross domestic product, gross domestic product per capita
Below is a table showing some countries’ GDP, population and GDP per capita.
| Countries' GDP and Population | |||
| GDP | Population | GDP per capita | |
| USD million | millions of people | USD | |
| United States | 18,036,648 | 325 | 55,492 |
| China | 11,158,457 | 1,383 | 8,066 |
| Japan | 4,383,076 | 127 | 34,586 |
| Germany | 3,363,600 | 83 | 40,623 |
| Norway | 500,519 | 5 | 95,027 |
Source: "GDP and its breakdown at current prices in US Dollars" United Nations Statistics Division. December 2016.
Using this data only, which one of these countries’ citizens have the highest living standards?