Fight Finance

A project has the following cash flows:

What is the Profitability Index (PI) of the project? Assume that the cash flows shown in the table are paid all at once at the given point in time. The required return is 10% pa, given as an effective annual rate.

A five year bond has a face value of $100, a yield of 12% and a fixed coupon rate of 6%, paid semi-annually.

What is the bond's price?

A share was bought for $4 and paid an dividend of $0.50 one year later (at t=1 year).

Just after the dividend was paid, the share price fell to $3.50 (at t=1 year). What were the total return, capital return and income returns given as effective annual rates? The answer choices are given in the same order:

##r_\text{total}##, ##r_\text{capital}##, ## r_\text{income}##

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:

One and a half years ago Frank bought a house for $600,000. Now it's worth only $500,000, based on recent similar sales in the area.

The expected total return on Frank's residential property is 7% pa.

He rents his house out for $1,600 per month, paid in advance. Every 12 months he plans to increase the rental payments.

The present value of 12 months of rental payments is $18,617.27.

The future value of 12 months of rental payments one year in the future is $19,920.48.

What is the expected annual rental yield of the property? Ignore the costs of renting such as maintenance, real estate agent fees and so on.

A stock will pay you a dividend of $10 tonight if you buy it today. Thereafter the annual dividend is expected to grow by 5% pa, so the next dividend after the $10 one tonight will be $10.50 in one year, then in two years it will be $11.025 and so on. The stock's required return is 10% pa.

What is the stock price today and what do you expect the stock price to be tomorrow, approximately?

Who is most in danger of being personally bankrupt? Assume that all of their businesses' assets are highly liquid and can therefore be sold immediately.

Mr Blue, Miss Red and Mrs Green are people with different utility functions. Which of the statements about the 3 utility functions is NOT correct?

Stutzer’s Portfolio Performance Indicator (PPI) ranks portfolios similarly to what other performance metric, assuming that the portfolios’ continuously compounded returns (LGDR’s) are normally distributed?