Fight Finance

Question 169  NPV, DDM

A stock is expected to pay the following dividends:

Cash Flows of a Stock
Time (yrs)	0	1	2	3	4	...
Dividend ($)	8	8	8	20	8	...

After year 4, the dividend will grow in perpetuity at 4% pa. The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates. Note that the $8 dividend at time zero is about to be paid tonight.

What is the current price of the stock?

(a) 170.24

(b) 141.09

(c) 137.09

(d) 131.62

(e) 127.98

Question 259  fully amortising loan, APR

You want to buy a house priced at $400,000. You have saved a deposit of $40,000. The bank has agreed to lend you $360,000 as a fully amortising loan with a term of 30 years. The interest rate is 8% pa payable monthly and is not expected to change.

What will be your monthly payments?

(a) $1,000

(b) $1,106.6497

(c) $2,400

(d) $2,571.8327

(e) $2,641.5525

Question 286  bill pricing

A 30-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 2.5% pa and there are 365 days in the year. What is its price now?

(a) $997,972.5283

(b) $997,949.4190

(c) $995,926.1048

(d) $975,609.7561

(e) $973,609.1893

Question 359  CFFA

Which one of the following will have no effect on net income (NI) but decrease cash flow from assets (CFFA or FFCF) in this year for a tax-paying firm, all else remaining constant?

Remember:

###NI=(Rev-COGS-FC-Depr-IntExp).(1-t_c )### ###CFFA=NI+Depr-CapEx - ΔNWC+IntExp###

(a) An increase in revenue (Rev).

(b) An increase in rent expense (a type of recurring fixed cost, FC).

(c) An increase in depreciation expense (Depr).

(d) An increase in inventories (a current asset).

(e) An decrease in interest expense (IntExp).

Question 395  real option, option

The cheapest mobile phones available tend to be those that are 'locked' into a cell phone operator's network. Locked phones can not be used with other cell phone operators' networks.

Locked mobile phones are cheaper than unlocked phones because the locked-in network operator helps create a monopoly by:

(a) Destroying customers' expansion option.

(b) Destroying customers' abandonment option.

(c) Destroying customers' timing (or delaying) option.

(d) Destroying customers' production (or switching) option.

(e) Growing customers' binomial tree.

Question 575  inflation, real and nominal returns and cash flows

You expect a nominal payment of $100 in 5 years. The real discount rate is 10% pa and the inflation rate is 3% pa. Which of the following statements is NOT correct?

(a) The nominal cash flow of $100 in 5 years is equivalent to a real cash flow of $86.2609 in 5 years. This means that $86.2609 will buy the same amount of goods and services now as $100 will buy in 5 years.

(b) The real discount rate of 10% pa is equivalent to a nominal discount rate of 13.3333% pa.

(c) The nominal price of goods and services will increase by 3% every year.

(d) The real price of goods and services will increase by 3% every year.

(e) The present value of your payment will increase by the nominal discount rate every year.

Question 647  open interest, trade volume, future

Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.

1. Alice buys a future from Bob.

2. Chris buys a future from Delta.

3. Delta buys a future from Bob.

These were the only trades made in this equity index future. What was the trading volume and what is the open interest?

(a) Daily trading volume is 3 contracts, open interest is 3 contracts.

(b) Daily trading volume is 3 contracts, open interest is 2 contracts.

(c) Daily trading volume is 3 contracts, open interest is 1 contract.

(d) Daily trading volume is 2 contracts, open interest is 3 contracts.

(e) Daily trading volume is 2 contracts, open interest is 2 contracts.

Question 703  utility, risk aversion, utility function, gamble

Mr Blue, Miss Red and Mrs Green are people with different utility functions.

Each person has $500 of initial wealth. A coin toss game is offered to each person at a casino where the player can win or lose $500. Each player can flip a coin and if they flip heads, they receive $500. If they flip tails then they will lose $500. Which of the following statements is NOT correct?

(a) All people prefer more rather than less wealth which is rational.

(b) Mr Blue is risk averse, Miss Red is risk neutral and Mrs Green is risk loving.

(c) Mr Blue's certainty equivalent of the gamble is $225. This is less than his current $500 which is why he would dislike the gamble.

(d) Miss Red's certainty equivalent of the gamble is $500. This is the same as her current $500 which is why she would be indifferent to gambling.

(e) Mrs Green's certainty equivalent of the gamble is $793.70. This is more than her current $500 which is why she would like the gamble.

Question 892  foreign exchange reserve, foreign exchange rate, no explanation

The Chinese central bank has the largest amount of foreign currency reserves.

What could the large amounts of foreign exchange reserves held by the Chinese government be used for in a currency crisis? China's currency is called the Renminbi (RMB) or Yuan (CNY). In a Chinese currency crisis the Chinese government is likely to use its FX reserves to:

(a) Buy RMB.

(b) Buy USD.

(c) Buy EUR.

(d) Buy JPY.

(e) Sell RMB.

Question 966  foreign exchange rate, no explanation

A Malaysian man wishes to convert 1 million Malaysian Ringgit (MYR) into Indian Rupees (IND). The exchange rate is 4.2 MYR per USD and 71 IND per USD. How much is the MYR 1 million worth in IND?

(a) IND 3,353

(b) IND 59,155

(c) IND 62,508

(d) IND 16,904,762

(e) IND 298,200,000