Question 235 SML, NPV, CAPM, risk
The security market line (SML) shows the relationship between beta and expected return.
Investment projects that plot on the SML would have:
A 10 year bond has a face value of $100, a yield of 6% pa and a fixed coupon rate of 8% pa, paid semi-annually. What is its price?
A fairly priced stock has an expected return equal to the market's. Treasury bonds yield 5% pa and the market portfolio's expected return is 10% pa. What is the stock's beta?
Estimate the Chinese bank ICBC's share price using a backward-looking price earnings (PE) multiples approach with the following assumptions and figures only. Note that the renminbi (RMB) is the Chinese currency, also known as the yuan (CNY).
- The 4 major Chinese banks ICBC, China Construction Bank (CCB), Bank of China (BOC) and Agricultural Bank of China (ABC) are comparable companies;
- ICBC 's historical earnings per share (EPS) is RMB 0.74;
- CCB's backward-looking PE ratio is 4.59;
- BOC 's backward-looking PE ratio is 4.78;
- ABC's backward-looking PE ratio is also 4.78;
Note: Figures sourced from Google Finance on 25 March 2014. Share prices are from the Shanghai stock exchange.
The saying "buy low, sell high" suggests that investors should make a:
A company conducts a 4 for 3 stock split. What is the percentage change in the stock price and the number of shares outstanding? The answers are given in the same order.
The 'time value of money' is most closely related to which of the following concepts?
You're considering a business project which costs $11m now and is expected to pay a single cash flow of $11m in one year. So you pay $11m now, then one year later you receive $11m.
Assume that the initial $11m cost is funded using the your firm's existing cash so no new equity or debt will be raised. The cost of capital is 10% pa.
Which of the following statements about the net present value (NPV), internal rate of return (IRR) and payback period is NOT correct?
This question is about the Balance of Payments. Australia's current account as a percent of nominal gross domestic product (GDP) per annum is shown in the graph below.
Assume that all foreign and domestic assets are either debt which makes interest income or equity which makes dividend income, and vice versa for liabilities which cost interest and dividend payments, respectively.
Which of the following statements is NOT correct?