Question 25 bond pricing, zero coupon bond, term structure of interest rates, forward interest rate
A European company just issued two bonds, a
- 2 year zero coupon bond at a yield of 8% pa, and a
- 3 year zero coupon bond at a yield of 10% pa.
What is the company's forward rate over the third year (from t=2 to t=3)? Give your answer as an effective annual rate, which is how the above bond yields are quoted.
The following is the Dividend Discount Model (DDM) used to price stocks:
### P_0 = \frac{d_1}{r-g} ###Assume that the assumptions of the DDM hold and that the time period is measured in years.
Which of the following is equal to the expected dividend in 3 years, ## d_3 ##?
Stock A has a beta of 0.5 and stock B has a beta of 1. Which statement is NOT correct?
Question 207 income and capital returns, bond pricing, coupon rate, no explanation
For a bond that pays fixed semi-annual coupons, how is the annual coupon rate defined, and how is the bond's annual income yield from time 0 to 1 defined mathematically?
Let: ##P_0## be the bond price now,
##F_T## be the bond's face value,
##T## be the bond's maturity in years,
##r_\text{total}## be the bond's total yield,
##r_\text{income}## be the bond's income yield,
##r_\text{capital}## be the bond's capital yield, and
##C_t## be the bond's coupon at time t in years. So ##C_{0.5}## is the coupon in 6 months, ##C_1## is the coupon in 1 year, and so on.
Which one of the following will decrease net income (NI) but increase cash flow from assets (CFFA) in this year for a tax-paying firm, all else remaining constant?
Remember:
###NI = (Rev-COGS-FC-Depr-IntExp).(1-t_c )### ###CFFA=NI+Depr-CapEx - \Delta NWC+IntExp###Question 566 capital structure, capital raising, rights issue, on market repurchase, dividend, stock split, bonus issue
A company's share price fell by 20% and its number of shares rose by 25%. Assume that there are no taxes, no signalling effects and no transaction costs.
Which one of the following corporate events may have happened?
An American wishes to convert USD 1 million to Australian dollars (AUD). The exchange rate is 0.8 USD per AUD. How much is the USD 1 million worth in AUD?
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Which of the following statements is NOT correct?
Question 734 real and nominal returns and cash flows, inflation, DDM, no explanation
An equities analyst is using the dividend discount model to price a company's shares. The company operates domestically and has no plans to expand overseas. It is part of a mature industry with stable positive growth prospects.
The analyst has estimated the real required return (r) of the stock and the value of the dividend that the stock just paid a moment before ##(C_\text{0 before})##.
What is the highest perpetual real growth rate of dividends (g) that can be justified? Select the most correct statement from the following choices. The highest perpetual real expected growth rate of dividends that can be justified is the country's expected:
Below is the Australian central bank’s cash rate.
From 2011 to 2017 the Australian central bank has implemented: