A stock is expected to pay the following dividends:
Cash Flows of a Stock | ||||||
Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
Dividend ($) | 2 | 2 | 2 | 10 | 3 | ... |
After year 4, the dividend will grow in perpetuity at 4% pa. The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates.
What is the current price of the stock?
Diversification in a portfolio of two assets works best when the correlation between their returns is:
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.
Question 522 income and capital returns, real and nominal returns and cash flows, inflation, real estate
A residential investment property has an expected nominal total return of 6% pa and nominal capital return of 2.5% pa. Inflation is expected to be 2.5% pa.
All of the above are effective nominal rates and investors believe that they will stay the same in perpetuity.
What are the property's expected real total, capital and income returns?
The answer choices below are given in the same order.
Safe firms with low chances of bankruptcy will tend to have:
The DuPont formula is:
###\dfrac{\text{Net Profit}}{\text{Sales}} \times \dfrac{\text{Sales}}{\text{Total Assets}} \times \dfrac{\text{Total Assets}}{\text{Owners' Equity}}###
Which of the following statements about the DuPont formula is NOT correct?
Question 861 open interest, closing out future contract, no explanation
Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.
1. Alice buys 2 future from Bob.
2. Chris buys 5 futures from Delta.
3. Chris buys 9 futures from Bob.
These were the only trades made in this equity index future.
Which of the following statements is NOT correct?
Which one of the following statements is NOT correct? A 1-for-4 bonus issue:
Use the below information to value a mature levered company with growing annual perpetual cash flows and a constant debt-to-assets ratio. The next cash flow will be generated in one year from now, so a perpetuity can be used to value this firm. The firm's debt funding comprises annual fixed coupon bonds that all have the same seniority and coupon rate. When these bonds mature, new bonds will be re-issued, and so on in perpetuity. The yield curve is flat.
Data on a Levered Firm with Perpetual Cash Flows | ||
Item abbreviation | Value | Item full name |
##\text{OFCF}_1## | $12.5m | Operating free cash flow at time 1 |
##\text{FFCF}_1 \text{ or }\text{CFFA}_1## | $14m | Firm free cash flow or cash flow from assets at time 1 |
##\text{EFCF}_1## | $11m | Equity free cash flow at time 1 |
##\text{BondCoupons}_1## | $1.2m | Bond coupons paid to debt holders at time 1 |
##g## | 2% pa | Growth rate of OFCF, FFCF, EFCF and Debt cash flow |
##\text{WACC}_\text{BeforeTax}## | 9% pa | Weighted average cost of capital before tax |
##\text{WACC}_\text{AfterTax}## | 8.25% pa | Weighted average cost of capital after tax |
##r_\text{D}## | 5% pa | Bond yield |
##r_\text{EL}## | 13% pa | Cost or required return of levered equity |
##D/V_L## | 50% pa | Debt to assets ratio, where the asset value includes tax shields |
##n_\text{shares}## | 1m | Number of shares |
##t_c## | 30% | Corporate tax rate |
Which of the following statements is NOT correct?