The following is the Dividend Discount Model used to price stocks:
### p_0=\frac{d_1}{r-g} ###
Which of the following statements about the Dividend Discount Model is NOT correct?
In late 2003 the listed bank ANZ announced a 2-for-11 rights issue to fund the takeover of New Zealand bank NBNZ. Below is the chronology of events:
- 23/10/2003. Share price closes at $18.30.
- 24/10/2003. 2-for-11 rights issue announced at a subscription price of $13. The proceeds of the rights issue will be used to acquire New Zealand bank NBNZ. Trading halt announced in morning before market opens.
- 28/10/2003. Trading halt lifted. Last (and only) day that shares trade cum-rights. Share price opens at $18.00 and closes at $18.14.
- 29/10/2003. Shares trade ex-rights.
All things remaining equal, what would you expect ANZ's stock price to open at on the first day that it trades ex-rights (29/10/2003)? Ignore the time value of money since time is negligibly short. Also ignore taxes.
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?
Let the standard deviation of returns for a share per month be ##\sigma_\text{monthly}##.
What is the formula for the standard deviation of the share's returns per year ##(\sigma_\text{yearly})##?
Assume that returns are independently and identically distributed (iid) so they have zero auto correlation, meaning that if the return was higher than average today, it does not indicate that the return tomorrow will be higher or lower than average.
You are promised 20 payments of $100, where the first payment is immediate (t=0) and the last is at the end of the 19th year (t=19). The effective annual discount rate is ##r##.
Which of the following equations does NOT give the correct present value of these 20 payments?
A 2-year futures contract on a stock paying a continuous dividend yield of 3% pa was bought when the underlying stock price was $10 and the risk free rate was 10% per annum with continuous compounding. Assume that investors are risk-neutral, so the stock's total required return is the risk free rate.
Find the forward price ##(F_2)## and value of the contract ##(V_0)## initially. Also find the value of the contract in 6 months ##(V_{0.5})## if the stock price rose to $12.
Which of the following is NOT a valid method for estimating the beta of a company's stock? Assume that markets are efficient, a long history of past data is available, the stock possesses idiosyncratic and market risk. The variances and standard deviations below denote total risks.
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 691 continuously compounding rate, effective rate, continuously compounding rate conversion, no explanation
A bank quotes an interest rate of 6% pa with quarterly compounding. Note that another way of stating this rate is that it is an annual percentage rate (APR) compounding discretely every 3 months.
Which of the following statements about this rate is NOT correct? All percentages are given to 6 decimal places. The equivalent:
A British man wants to calculate how many British pounds (GBP) he needs to buy a 1 million euro (EUR) apartment in Germany. The exchange rate is 1.42 USD per GBP and 1.23 USD per EUR. What is the EUR 1 million equivalent to in GBP?