A stock pays annual dividends. It just paid a dividend of $5. The growth rate in the dividend is 1% pa. You estimate that the stock's required return is 8% pa. Both the discount rate and growth rate are given as effective annual rates.

Using the dividend discount model, what will be the share price?

**Question 246** foreign exchange rate, forward foreign exchange rate, cross currency interest rate parity

Suppose the Australian cash rate is expected to be **8.15**% pa and the US federal funds rate is expected to be **3.00**% pa over the next **2** years, both given as nominal effective annual rates. The current exchange rate is at parity, so **1** USD = **1** AUD.

What is the implied **2** year forward foreign exchange rate?

The Chinese government attempts to fix its exchange rate against the US dollar and at the same time use monetary policy to fix its interest rate at a set level.

To be able to fix its exchange rate and interest rate in this way, what does the Chinese government actually do?

- Adopts capital controls to prevent financial arbitrage by private firms and individuals.
- Adopts the same interest rate (monetary policy) as the United States.
- Fixes inflation so that the domestic real interest rate is equal to the United States' real interest rate.

Which of the above statements is or are true?

One method for calculating a firm's free cash flow (FFCF, or CFFA) is to ignore interest expense. That is, pretend that interest expense ##(IntExp)## is zero:

###\begin{aligned} FFCF &= (Rev - COGS - Depr - FC - IntExp)(1-t_c) + Depr - CapEx -\Delta NWC + IntExp \\ &= (Rev - COGS - Depr - FC - 0)(1-t_c) + Depr - CapEx -\Delta NWC - 0\\ \end{aligned}###

The first payment of a constant perpetual annual cash flow is received at time 5. Let this cash flow be ##C_5## and the required return be ##r##.

So there will be equal annual cash flows at time 5, 6, 7 and so on forever, and all of the cash flows will be equal so ##C_5 = C_6 = C_7 = ...##

When the perpetuity formula is used to value this stream of cash flows, it will give a value (V) at time:

The below screenshot of Commonwealth Bank of Australia's (CBA) details were taken from the Google Finance website on 7 Nov 2014. Some information has been deliberately blanked out.

What was CBA's approximate payout ratio over the 2014 financial year?

Note that the firm's interim and final dividends were $**1.83** and $**2.18** respectively over the 2014 financial year.

An American wishes to convert **USD 1 million** to Australian dollars (AUD). The exchange rate is **0.8 USD per AUD**. How much is the USD 1 million worth in AUD?

A home loan company advertises an interest rate of 6% pa, payable monthly. Which of the following statements about the interest rate is **NOT** correct? All rates are given to four decimal places.

A trader **sells** one crude oil European style **call** 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 719** mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate

A stock has an arithmetic average continuously compounded return (AALGDR) of **10**% pa, a standard deviation of continuously compounded returns (SDLGDR) of **80**% pa and current stock price of $**1**. Assume that stock prices are log-normally distributed.

In **one** year, what do you expect the mean and median prices to be? The answer options are given in the same order.