A project has the following cash flows:
Project Cash Flows | |
Time (yrs) | Cash flow ($) |
0 | -400 |
1 | 0 |
2 | 500 |
What is the payback period of the project in years?
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 $500 at time 2 is actually earned smoothly from t=1 to t=2.
A highly levered risky firm is trying to raise more debt. The types of debt being considered, in no particular order, are senior bonds, junior bonds, bank accepted bills, promissory notes and bank loans.
Which of these forms of debt is the safest from the perspective of the debt investors who are thinking of investing in the firm's new debt?
Question 472 quick ratio, accounting ratio
A firm has current assets totaling $1.5b of which cash is $0.25b and inventories is $0.5b. Current liabilities total $2b of which accounts payable is $1b.
What is the firm's quick ratio, also known as the acid test ratio?
A pig farmer in the US is worried about the price of hogs falling and wants to lock in a price now. In one year the pig farmer intends to sell 1,000,000 pounds of hogs. Luckily, one year CME lean hog futures expire on the exact day that he wishes to sell his pigs. The futures have a notional principal of 40,000 pounds (about 18 metric tons) and currently trade at a price of 63.85 cents per pound. The underlying lean hogs spot price is 77.15 cents per pound. The correlation between the futures price and the underlying hogs price is one and the standard deviations are both 4 cents per pound. The initial margin is USD1,500 and the maintenance margin is USD1,200 per futures contract.
Which of the below statements is NOT correct?
Question 742 price gains and returns over time, no explanation
For an asset's price to quintuple (be five times as big, say from $1 to $5) every 5 years, what must be its effective annual capital return?
Question 811 log-normal distribution, mean and median returns, return distribution, arithmetic and geometric averages
Which of the following statements about probability distributions is NOT correct?
Question 823 option, option payoff at maturity, option profit, no explanation
A European call option should only be exercised if:
Question 894 balance of payments, current account, no explanation
Below are four graphs of Australia's external position, published in the RBA's chart pack.
Assume that all assets and liabilities are debt which makes interest income and equity which makes dividend income.
Which of the following statements is NOT correct? As at the end of 2017, Australia’s:
You are an equities analyst trying to value the equity of the Australian supermarket conglomerate Woolworths, with ticker WOW. In Australia, listed companies like Woolworths tend to pay dividends every 6 months. The payment around September is the final dividend and the payment around March is called the interim dividend. Both occur annually.
- Today is mid-November 2018.
- WOW's last final dividend of $0.50 was two months ago in mid-September 2018.
- WOW's last interim dividend of $0.43 was eight months ago in mid-March 2018.
- Judging by the dividend history and WOW's prospects, you judge that the growth rate in the dividends will be 3% pa forever.
- Assume that WOW's total cost of equity is 6.5% pa. All rates are quoted as nominal effective rates.
- The dividends are nominal cash flows and the inflation rate is 2.5% pa.
What should be the current share price of WOW?
RBA analyst Adam Hamilton wrote in the December 2018 Bulletin article ‘Understanding Exchange Rates and Why They Are Important’ the following passage about bilateral exchange rates:
A bilateral exchange rate refers to the value of one currency relative to another. It is the most commonly referenced type of exchange rate. Most bilateral exchange rates are quoted against the US dollar (USD), as it is the most traded currency globally. Looking at the Australian dollar (AUD), the AUD/USD exchange rate gives you the amount of US dollars that you will receive for each Australian dollar that you convert (or sell). For example, an AUD/USD exchange rate of 0.75 means that you will get US75 cents for every 1 AUD.
An appreciation of the Australian dollar is an increase in its value compared with a foreign currency. This means that each Australian dollar buys you more foreign currency than before. Equivalently, if you are buying an item that is priced in foreign currency it will now cost you less in Australian dollars than before. If there is a depreciation of the Australian dollar, the opposite is true.
Based on this information, which of the following statements is NOT correct?