Fight Finance

(a) The expected total return of the stock.

(b) The expected capital return of the stock.

(c) The expected dividend return of the stock.

(d) The expected income return of the stock.

(e) The expected growth rate of the stock price.

(a) $71.4286

(b) $72.1429

(c) $84.3072

(d) $85.1503

(e) $172.7648

(a) -0.7814%

(b) -0.2724%

(c) 1.8124%

(d) 2%

(e) 2.1518%

(a) ##V_0=\dfrac{C_t}{(1+r)^t} ##

(b) ##V_0=\dfrac{C_1}{r}.\left(1-\dfrac{1}{(1+r)^T} \right)= \sum\limits_{t=1}^T \left( \dfrac{C_t}{(1+r)^t} \right) ##

(c) ##V_0=\dfrac{C_1}{r-g}.\left(1-\left(\dfrac{1+g}{1+r}\right)^T \right)= \sum\limits_{t=1}^T \left( \dfrac{C_t.(1+g)^t}{(1+r)^t} \right) ##

(d) ##V_0=\dfrac{C_1}{r} = \sum\limits_{t=1}^\infty \left( \dfrac{C_t}{(1+r)^t} \right) ##

(e) ##V_0=\dfrac{C_1}{r-g} = \sum\limits_{t=1}^\infty \left( \dfrac{C_t.(1+g)^t}{(1+r)^t} \right) ##

(a) Price to EBITDA multiple.

(b) Price to book multiple.

(c) Price to earnings multiple.

(d) Price to revenue multiple.

(e) Discounted cash flow (DCF).

(a) 2% pa.

(b) 2.6% pa.

(c) 3.4% pa.

(d) 4% pa.

(e) 4.6% pa.

(a) The market portfolio M has systematic risk only. It’s a fully diversified portfolio comprised of all individual risky assets. The market portfolio is usually assumed to be the equity index, such as the ASX200 in Australia or the S&P500 in the US.

(b) The risk free security has no risk at all. Government bonds are usually assumed to be the risk-free security.

(c) Portfolio combinations of the market portfolio and risk free security will plot on the CML and will have systematic risk only. They will have no diversifiable risk.

(d) The portfolios on the CML with a return above ##r_f## have maximum return for any given level of risk.

(e) The individual assets and portfolios with returns less than the risk free rate are over-priced, have a negative Jensen’s alpha and should be sold.

(a) Commonwealth Bank of Australia.

(b) Reserve Bank of Australia.

(c) National Australia Bank.

(d) Elected Federal Government.

(e) Australian Treasury.

(a) The Macaulay duration of the bond is 22 years.

(b) If yields-to-maturity suddenly fell by 1 percentage point then bond prices would suddenly rise by 20% or more.

(c) If yields-to-maturity suddenly rose by 2 percentage points then bond prices would suddenly fall by 40% or less.

(d) If the bond is a zero-coupon bond then its maturity is 20 years.

(e) The modified-duration-price-change formula assumes parallel shifts in the yield curve.

(a) The initial futures price would be $39.1828.

(b) The initial value of the futures contract would be zero.

(c) If the spot price rose to $45 at month 1, then the value of the futures contract would be positive $4.8999 at that time.

(d) If the spot price fell to $35 at month 3, then the value of the futures contract would be negative $4.1828 at that time.

(e) If the spot price remained at $40 until maturity, then the value of the futures contract would be positive $0.8172 at that time.