A project has the following cash flows. Normally cash flows are assumed to happen at the given time. But here, assume that the cash flows are received smoothly over the year. So the $250 at time 2 is actually earned smoothly from t=1 to t=2:
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -400 |
| 1 | 200 |
| 2 | 250 |
What is the payback period of the project in years?
A new company's Firm Free Cash Flow (FFCF, same as CFFA) is forecast in the graph below.
To value the firm's assets, the terminal value needs to be calculated using the perpetuity with growth formula:
###V_{\text{terminal, }t-1} = \dfrac{FFCF_{\text{terminal, }t}}{r-g}###
Which point corresponds to the best time to calculate the terminal value?
This annuity formula ##\dfrac{C_1}{r}\left(1-\dfrac{1}{(1+r)^3} \right)## is equivalent to which of the following formulas? Note the 3.
In the below formulas, ##C_t## is a cash flow at time t. All of the cash flows are equal, but paid at different times.
An Indonesian lady wishes to convert 1 million Indonesian rupiah (IDR) to Australian dollars (AUD). Exchange rates are 13,125 IDR per USD and 0.79 USD per AUD. How many AUD is the IDR 1 million worth?
Question 579 price gains and returns over time, time calculation, effective rate
How many years will it take for an asset's price to double if the price grows by 10% pa?
A stock is expected to pay a dividend of $5 per share in 1 month and $5 again in 7 months.
The stock price is $100, and the risk-free rate of interest is 10% per annum with continuous compounding. The yield curve is flat. Assume that investors are risk-neutral.
An investor has just taken a short position in a one year forward contract on the stock.
Find the forward price ##(F_1)## and value of the contract ##(V_0)## initially. Also find the value of the short futures contract in 6 months ##(V_\text{0.5, SF})## if the stock price fell to $90.
Which of the below statements about utility is NOT generally accepted by economists? Most people are thought to:
The market's expected total return is 10% pa and the risk free rate is 5% pa, both given as effective annual rates.
A stock has a beta of 0.7.
What do you think will be the stock's expected return over the next year, given as an effective annual rate?
Question 1003 Black-Scholes-Merton option pricing, log-normal distribution, return distribution, hedge fund, risk, financial distress
A hedge fund issued zero coupon bonds with a combined $1 billion face value due to be paid in 3 years. The promised yield to maturity is currently 6% pa given as a continuously compounded return (or log gross discrete return, ##LGDR=\ln[P_T/P_0] \div T##).
The hedge fund owns stock assets worth $1.1 billion now which are expected to have a 10% pa arithmetic average log gross discrete return ##(\text{AALGDR} = \sum\limits_{t=1}^T{\left( \ln[P_t/P_{t-1}] \right)} \div T)## and 30pp pa standard deviation (SDLGDR) in the future.
Analyse the hedge fund using the Merton model of corporate equity as an option on the firm's assets.
The risk free government bond yield to maturity is currently 5% pa given as a continuously compounded return or LGDR.
Which of the below statements is NOT correct? All figures are rounded to the sixth decimal place.