A firm wishes to raise $8 million now. They will issue 7% pa semi-annual coupon bonds that will mature in 10 years and have a face value of $100 each. Bond yields are 10% pa, given as an APR compounding every 6 months, and the yield curve is flat.
How many bonds should the firm issue?
A share pays annual dividends. It just paid a dividend of $2. The growth rate in the dividend is 3% 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 is the share price?
In mid 2009 the listed mining company Rio Tinto announced a 21-for-40 renounceable rights issue. Below is the chronology of events:
- 04/06/2009. Share price opens at $69.00 and closes at $66.90.
- 05/06/2009. 21-for-40 rights issue announced at a subscription price of $28.29.
- 16/06/2009. Last day that shares trade cum-rights. Share price opens at $76.40 and closes at $75.50.
- 17/06/2009. Shares trade ex-rights. Rights trading commences.
All things remaining equal, what would you expect Rio Tinto's stock price to open at on the first day that it trades ex-rights (17/6/2009)? Ignore the time value of money since time is negligibly short. Also ignore taxes.
A 60-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 8% pa and there are 365 days in the year. What is its price now?
Question 335 foreign exchange rate, American and European terms
Investors expect Australia's central bank, the RBA, to reduce the policy rate at their next meeting due to fears that the economy is slowing. Then unexpectedly, the policy rate is actually kept unchanged.
What do you expect to happen to Australia's exchange rate?
A company advertises an investment costing $1,000 which they say is underpriced. 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 always be 7% pa and rest is the capital yield.
Assuming 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):
An investor owns a portfolio with:
- 80% invested in stock A; and
- 20% invested in stock B.
Today there was a:
- 10% rise in stock A's price; and
- No change in stock B's price.
No dividends were paid on either stock. What was the total historical portfolio return on this day? All returns above and answer options below are given as effective daily rates.
Examine the below graphs. The first graph shows daily FX turnover in the world by both the public (government) and private sectors. The second graph 'Official Reserve Assets' shows the FX reserves of the Australian central bank, the RBA. The third graph's top panel shows the FX reserves of the Chinese central bank, the PBoC.
Assume that the AUD and USD are priced at parity so 1 AUD = 1 USD.
Which of the following statements is NOT correct?