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Katya offers to pay you $10 at the end of every year for the next 5 years (t=1,2,3,4,5) if you pay her $50 now (t=0). You can borrow and lend from the bank at an interest rate of 10% pa, given as an effective annual rate. Ignore credit risk.

Question 10 DDM

For a price of $95, Sherylanne will sell you a share which is expected to pay its first dividend of $10 in 7 years (t=7), and will continue to pay the same $10 dividend every year after that forever.

The required return of the stock is 10% pa.

Question 116 capital structure, CAPM

A firm changes its capital structure by issuing a large amount of equity and using the funds to repay debt. Its assets are unchanged. Ignore interest tax shields.

According to the Capital Asset Pricing Model (CAPM), which statement is correct?

Question 122 option

You have just sold an 'in the money' 6 month European put option on the mining company BHP at an exercise price of $40 for a premium of $3.

Which of the following statements best describes your situation?

Question 191 NPV, IRR, profitability index, pay back period

A project's Profitability Index (PI) is less than 1. Select the most correct statement:

Question 230 bond pricing, capital raising

A firm wishes to raise $10 million now. They will issue 6% pa semi-annual coupon bonds that will mature in 8 years and have a face value of $1,000 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? All numbers are rounded up.

Question 527 income and capital returns

Total cash flows can be broken into income and capital cash flows.

What is the name given to the cash flow generated from selling shares at a higher price than they were bought?

Question 614 debt terminology

Question 711 continuously compounding rate, continuously compounding rate conversion

A continuously compounded semi-annual return of 5% ##(r_\text{cc 6mth})## is equivalent to a continuously compounded annual return ##(r_\text{cc annual})## of:

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:

(a) Trade surplus was roughly zero, so Australians exported as much as they imported.

(b) Net Income was negative, so Australians paid more dividends and interest to foreigners than they received. This is probably because Australia has greater gross foreign liabilities than gross foreign assets.

(c) Current account deficit means Australians have to lend to foreigners by buying foreigners’ debt and equity which represent net capital outflows out of Australia.

(d) Net foreign equity liabilities were negative (less than zero) so Australians had positive net foreign equity assets which means that Australians owned more foreign shares than foreigners owned of Australian shares.

(e) Persistent current account deficit will make its net foreign liabilities greater and greater.