A project has the following cash flows:
Project Cash Flows | |
Time (yrs) | Cash flow ($) |
0 | -400 |
1 | 0 |
2 | 500 |
The required return on the project is 10%, given as an effective annual rate.
What is the Internal Rate of Return (IRR) of this project? The following choices are effective annual rates. Assume that the cash flows shown in the table are paid all at once at the given point in time.
You just signed up for a 30 year fully amortising mortgage loan with monthly payments of $1,500 per month. The interest rate is 9% pa which is not expected to change.
To your surprise, you can actually afford to pay $2,000 per month and your mortgage allows early repayments without fees. If you maintain these higher monthly payments, how long will it take to pay off your mortgage?
Three important classes of investable risky assets are:
- Corporate debt which has low total risk,
- Real estate which has medium total risk,
- Equity which has high total risk.
Assume that the correlation between total returns on:
- Corporate debt and real estate is 0.1,
- Corporate debt and equity is 0.1,
- Real estate and equity is 0.5.
You are considering investing all of your wealth in one or more of these asset classes. Which portfolio will give the lowest total risk? You are restricted from shorting any of these assets. Disregard returns and the risk-return trade-off, pretend that you are only concerned with minimising risk.
Question 729 book and market values, balance sheet, no explanation
If a firm makes a profit and pays no dividends, which of the firm’s accounts will increase?
Question 780 mispriced asset, NPV, DDM, market efficiency, no explanation
A company advertises an investment costing $1,000 which they say is under priced. They say that it has an expected total return of 15% pa, but a required return of only 10% pa. Of the 15% pa total expected return, the dividend yield is expected to be 4% pa and the capital yield 11% pa. Assume that the company's statements are correct.
What is the NPV of buying the investment if the 15% total return lasts for the next 100 years (t=0 to 100), then reverts to 10% after that time? Also, what is the NPV of the investment if the 15% return lasts forever?
In both cases, assume that the required return of 10% remains constant, the dividends can only be re-invested at 10% pa and all returns are given as effective annual rates. The answer choices below are given in the same order (15% for 100 years, and 15% forever):
A firm wishes to raise $30 million now. The firm's current market value of equity is $60m and the market price per share is $20. They estimate that they'll be able to issue shares in a rights issue at a subscription price of $15. Ignore the time value of money and assume that all shareholders exercise their rights. Which of the following statements is NOT correct?
Question 800 leverage, portfolio return, risk, portfolio risk, capital structure, no explanation
Which of the following assets would you expect to have the highest required rate of return? All values are current market values.
A stock is expected to pay its semi-annual dividend of $1 per share for the foreseeable future. The current stock price is $40 and the continuously compounded risk free rate is 3% pa for all maturities. An investor has just taken a long position in a 12-month futures contract on the stock. The last dividend payment was exactly 4 months ago. Therefore the next $1 dividend is in 2 months, and the $1 dividend after is 8 months from now. Which of the following statements about this scenario is NOT correct?