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Question 193  bond pricing, premium par and discount bonds

Which one of the following bonds is trading at par?



Question 333  DDM, time calculation

When using the dividend discount model, care must be taken to avoid using a nominal dividend growth rate that exceeds the country's nominal GDP growth rate. Otherwise the firm is forecast to take over the country since it grows faster than the average business forever.

Suppose a firm's nominal dividend grows at 10% pa forever, and nominal GDP growth is 5% pa forever. The firm's total dividends are currently $1 billion (t=0). The country's GDP is currently $1,000 billion (t=0).

In approximately how many years will the company's total dividends be as large as the country's GDP?



Question 631  foreign exchange rate

The Australian dollar's value was:

  • 1.4875 USD per AUD on 31 August 1974.
  • 0.4890 USD per AUD on 31 March 2001.

Did the Australian dollar or against the US dollar between these dates?


Question 642  future, no explanation

Which of the below formulas gives the payoff at maturity ##(f_T)## from being short a future? Let the underlying asset price at maturity be ##S_T## and the locked-in futures price be ##K_T##.



Question 684  future, arbitrage, no explanation

An equity index stands at 100 points and the one year equity futures price is 102.

The equity index is expected to have a dividend yield of 4% pa. Assume that investors are risk-neutral so their total required return on the shares is the same as the risk free Treasury bond yield which is 10% pa. Both are given as discrete effective annual rates.

Assuming that the equity index is fairly priced, an arbitrageur would recognise that the equity futures are:



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. The graph below summarises this information and provides some helpful formulas.

graph

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



Question 750  PE ratio, Multiples valuation

Itau Unibanco is a major listed bank in Brazil with a market capitalisation of equity equal to BRL 85.744 billion, EPS of BRL 3.96 and 2.97 billion shares on issue.

Banco Bradesco is another major bank with total earnings of BRL 8.77 billion and 2.52 billion shares on issue.

Estimate Banco Bradesco's current share price using a price-earnings multiples approach assuming that Itau Unibanco is a comparable firm.

Note that BRL is the Brazilian Real, their currency. Figures sourced from Google Finance on the market close of the BVMF on 24 July 2015.



Question 767  idiom, corporate financial decision theory, no explanation

The sayings "Don't cry over spilt milk", "Don't regret the things that you can't change" and "What's done is done" are most closely related to which financial concept?



Question 819  option, derivative terminology, no explanation

Which of the following terms about options are NOT synonyms?



Question 915  price gains and returns over time, IRR, NPV, income and capital returns, effective return

For a share price to double over 7 years, what must its capital return be as an effective annual rate?