Fight Finance

(a) a ten-year bond with a $4,000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% paid semi-annually.

(b) a fifteen-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% paid semi-annually.

(c) a five-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% paid semi-annually.

(d) a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% paid semi-annually.

(e) None of the above bonds are premium bonds.

Do you think that the following statement is or ? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

An expansion option is best modeled as a or option?

(a) Asset A has a Jensen's alpha of 4.5% pa.

(b) Asset A is under-priced.

(c) The NPV of buying asset A is zero.

(d) Asset B has a Jensen's alpha of zero.

(e) Asset B is fairly priced.

(a) $480, so the bundled plan is best.

(b) $462.94, so the BYO plan is best.

(c) $429.12, so the bundled plan is best.

(d) $424.87, so the BYO plan is best.

(e) $420.66, so the bundled plan is best.

(a) Expected total return will equal its required total return if the stock is fairly priced.

(b) Expected total return will be less than its required total return if the stock is over-priced.

(c) Required total return should be higher than the risk free government bond yield if the stock has a positive beta.

(d) Required total return depends on its total variance, required capital return depends on systematic variance and the dividend yield depends on idiosyncratic variance.

(e) Expected capital return equals the expected total return less whatever the management decide that they will pay as an income return (which is the dividend yield).

(a) Buy an investment property with low expected future capital gains and high rental income, funded using a low proportion of debt (mortgage loan);

(b) Rent the investment property to a tenant;

(c) Negative gearing is achieved when the property investment’s annual taxable profit is negative, due to the loan’s interest expense being greater than the net rent (rental revenue less the renting expenses such as maintenance);

(d) Deduct the property’s income loss from the investor’s separate personal wage from labour. This means that the investor will pay less personal income tax than if they didn’t make the levered property investment;

(e) The investment property will be a positive-NPV investment if the capital gains are greater than the income losses on an after-tax, risk-adjusted, present-value basis.

(a) Dollars ($).

(b) Dollars per day ($/day).

(c) Dollars per day squared ($/day^2).

(d) Dollars squared per day ($^2/day).

(e) Dollars squared per day squared ($^2/day^2).

(a) The AUD was strongest against the JPY in 1984. This would have been a good time for Australians to holiday in Japan.

(b) Between 2001 and 2007 the AUD appreciated against the USD which would have been bad news for Australian exporters.

(c) In 1985 the AUD depreciated against the USD, JPY and EUR.

(d) In 2011 and 2012, Australian products would have appeared cheap in USD for Americans compared to the past.

(e) Between 1984 and 1986, the JPY appreciated against the USD.

(a) The Enterprise Value (EV) is $2 billion and the asset value is $2.1 billion.

(b) The market capitalisation of equity is $1.4 billion and the stock price is $700.

(c) Gross debt is $0.7 billion and net debt is $0.6 billion (net of cash).

(d) Next year’s expected dividend per share is $28.

(e) The forward looking PE ratio is 15.