A company's shares just paid their annual dividend of $2 each.

The stock price is now $40 (just after the dividend payment). The annual dividend is expected to grow by 3% every year forever. The assumptions of the dividend discount model are valid for this company.

What do you expect the effective annual **dividend yield** to be in 3 years (dividend yield from t=3 to t=4)?

Find Scubar Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.

Scubar Corp | ||

Income Statement for | ||

year ending 30th June 2013 | ||

$m | ||

Sales | 200 | |

COGS | 60 | |

Depreciation | 20 | |

Rent expense | 11 | |

Interest expense | 19 | |

Taxable Income | 90 | |

Taxes at 30% | 27 | |

Net income | 63 | |

Scubar Corp | ||

Balance Sheet | ||

as at 30th June | 2013 | 2012 |

$m | $m | |

Inventory | 60 | 50 |

Trade debtors | 19 | 6 |

Rent paid in advance | 3 | 2 |

PPE | 420 | 400 |

Total assets | 502 | 458 |

Trade creditors | 10 | 8 |

Bond liabilities | 200 | 190 |

Contributed equity | 130 | 130 |

Retained profits | 162 | 130 |

Total L and OE | 502 | 458 |

Note: All figures are given in millions of dollars ($m).

The cash flow from assets was:

Three years ago Frederika bought a house for $**400,000**.

Now it's worth $**600,000**, based on recent similar sales in the area.

Frederika's residential property has an expected **total** return of **7**% pa.

She rents her house out for $**2,500** per month, paid in advance. Every 12 months she plans to increase the rental payments.

The present value of 12 months of rental payments is $**29,089.48**.

The future value of 12 months of rental payments one year ahead is $**31,125.74**.

What is the expected annual **capital** yield of the property?

**Question 363** income and capital returns, inflation, real and nominal returns and cash flows, real estate

A residential investment property has an expected **nominal** total return of **8**% pa and nominal capital return of **3**% pa.

Inflation is expected to be **2**% pa. All rates are given as effective annual rates.

What are the property's expected **real** total, capital and income returns? The answer choices below are given in the same order.

On 22-Mar-2013 the Australian Government issued series TB139 treasury bonds with a combined face value $23.4m, listed on the ASX with ticker code GSBG25.

The bonds mature on **21-Apr-2025**, the fixed coupon rate is **3.25**% pa and coupons are paid **semi-annually** on the 21st of April and October of each year. Each bond's face value is $**1,000**.

At market close on Friday **11-Sep-2015** the bonds' yield was **2.736**% pa.

At market close on Monday **14-Sep-2015** the bonds' yield was **2.701**% pa. Both yields are given as annualised percentage rates (APR's) compounding every 6 months. For convenience, assume 183 days in 6 months and 366 days in a year.

What was the historical total return over those 3 calendar days between Friday 11-Sep-2015 and Monday 14-Sep-2015?

There are **183** calendar days from market close on the last coupon 21-Apr-2015 to the market close of the next coupon date on 21-Oct-2015.

Between the market close times from 21-Apr-2015 to 11-Sep-2015 there are **143** calendar days. From 21-Apr-2015 to 14-Sep-2015 there are **146** calendar days.

From 14-Sep-2015 there were **20** coupons remaining to be paid including the next one on 21-Oct-2015.

All of the below answers are given as effective 3 day rates.

To value a business's assets, the free cash flow of the firm (FCFF, also called CFFA) needs to be calculated. This requires figures from the firm's income statement and balance sheet. For what figures is the balance sheet needed? Note that the balance sheet is sometimes also called the statement of financial position.

**Question 699** utility, risk aversion, utility function, gamble

Mr Blue, Miss Red and Mrs Green are people with different utility functions.

Each person has $50 of initial wealth. A coin toss game is offered to each person at a casino where the player can win or lose $50. Each player can flip a coin and if they flip heads, they receive $50. If they flip tails then they will lose $50. Which of the following statements is **NOT** correct?

Itau Unibanco is a major listed bank in Brazil with a market capitalisation of equity equal to BRL **85.744** billion, EPS of **BRL 3.96** and **2.97** billion shares on issue.

Banco Bradesco is another major bank with total earnings of BRL **8.77** billion and **2.52** billion shares on issue.

Estimate Banco Bradesco's current share price using a price-earnings multiples approach assuming that Itau Unibanco is a comparable firm.

Note that BRL is the Brazilian Real, their currency. Figures sourced from Google Finance on the market close of the BVMF on 24/7/15.

**Question 778** CML, systematic and idiosyncratic risk, portfolio risk, CAPM, no explanation

The capital market line (CML) is shown in the graph below. The total standard deviation is denoted by σ and the expected return is μ. Assume that markets are efficient so all assets are fairly priced.

Which of the below statements is **NOT** correct?

**Question 809** Markowitz portfolio theory, CAPM, Jensens alpha, CML, systematic and idiosyncratic risk

A graph of assets’ expected returns ##(\mu)## versus standard deviations ##(\sigma)## is given in the graph below. The CML is the capital market line.

Which of the following statements about this graph, Markowitz portfolio theory and the Capital Asset Pricing Model (CAPM) theory is **NOT** correct?