Fight Finance

(a) The dividend yield is equal to ##(r-g)##.

(b) The dividend yield is equal to ##\left( \dfrac{d_1}{p_0} \right)##.

(c) The total return of the stock is equal to ##(r)##.

(d) The total return of the stock is equal to ##\left( \dfrac{d_1+p_0.g}{p_0} \right)##.

(e) The total return of the stock is equal to ##(r+g)##.

(a) Buy less land, buildings and trucks than what was planned. Assume that this has no impact on revenue.

(b) Pay off more debt than was planned, to reduce the firm’s interest expense.

(c) Change the depreciation method used for tax purposes from diminishing value to straight line, so less depreciation occurs this year and more occurs in later years. Assume that the government’s tax department allow this.

(d) Buying more inventory than was planned, so there is an increase in net working capital. Assume that there is no increase in sales.

(e) Raising new equity through a rights issue. Assume that all of the money raised is spent on new capital assets such as land and trucks, but they will be fitted out and delivered in one year so no new cash will be earned from them.

(a) 0.143476 is the implicit rate. The buying firm should borrow from the bank and pay at day 5.

(b) 0.130771 is the implicit rate. The buying firm should NOT borrow from the bank and just pay at day 60.

(c) 0.125473 is the implicit rate. The buying firm should borrow from the bank and pay at day 5.

(d) 0.120131 is the implicit rate. The buying firm should NOT borrow from the bank and just pay at day 60.

(e) 0.020408 is the implicit rate. The buying firm should borrow from the bank and pay at day 5.

(a) 3.1029%

(b) 3.3201%

(c) 3.7235%

(d) 3.9841%

(e) 7%

(a) The rental yield will fall and approach zero.

(b) The total return will fall and approach the capital return (5% pa).

(c) One or all of the following must fall: the systematic risk of real estate, the risk free rate or the market risk premium.

(d) If the country's nominal wealth growth rate is 4% pa and the nominal real estate growth rate is 5% pa then real estate will approach 100% of the country's wealth over time.

(e) If the country's nominal gross domestic production (GDP) growth rate is 4% pa and the nominal real estate rent growth rate is 2% pa then real estate rent will approach 100% of the country's GDP over time.

(a) Highly liquid publically listed firms.

(b) Firms in a declining industry with very low or negative earnings growth.

(c) Firms expected to have temporarily low earnings over the next year, but with higher earnings later.

(d) Firms whose returns have a very low level of systematic risk.

(e) Firms whose assets include a very large proportion of cash.

(a) ##C_0+C_1+C_2+C_3##

(b) ##\dfrac{C_0+C_1+C_2+C_3}{(1+r)^3} ##

(c) ##C_0+\dfrac{C_1}{(1+r)^1} +\dfrac{C_2}{(1+r)^2} + \dfrac{C_3}{(1+r)^3} ##

(d) ##\dfrac{C_1}{(1+r)^1} +\dfrac{C_2}{(1+r)^2} + \dfrac{C_3}{(1+r)^3} ##

(e) ##\dfrac{C_1}{(1+r)^1} + \dfrac{C_2}{(1+r)^2} ##

(a) Low debt to assets ratios.

(b) Low quick ratios.

(c) High interest coverage ratios.

(d) Positive amounts of net working capital.

(e) High net profit margins.

(a) 0% pa

(b) 3.5% pa

(c) 4% pa

(d) 4.5% pa

(e) 5% pa

(a) The geometric average of the gross discrete returns (GAGDR) equals 1 which is 100%.

(b) ##\text{GAGDR} = \exp \left( \text{AALGDR} \right)##. The GAGDR is equal to the natural exponent of the arithmetic average of the logarithms of the gross discrete returns (AALGDR).

(c) ##\text{GAGDR} = \left( P_T/P_0 \right)^{1/T}##. The GAGDR equals the ratio of the last and first prices raised to the power of the inverse of the number of time periods between them.

(d) ##\text{LGAGDR} = \text{AALGDR}##. This is always true, regardless of the distribution of the prices or returns and the number of return observations. The logarithm of the geometric average of the gross discrete returns (LGAGDR) is always equal to the arithmetic average of the logarithms of the gross discrete returns (AALGDR).

(e) ##\text{LAAGDR} = \text{AALGDR} + \text{SDLGDR}^2/2##. This is always true, regardless of the distribution of the prices or returns and the number of return observations. The logarithm of the arithmetic average of the gross discrete returns (LAAGDR) equals the arithmetic average of the logarithms of the gross discrete returns (AALGDR) plus half the variance of the LGDR's.