A 180-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 8% pa and there are 365 days in the year. What is its price now?

**Question 100** market efficiency, technical analysis, joint hypothesis problem

A company selling charting and technical analysis software claims that independent academic studies have shown that its software makes significantly positive abnormal returns. Assuming the claim is true, which statement(s) are correct?

(I) Weak form market efficiency is broken.

(II) Semi-strong form market efficiency is broken.

(III) Strong form market efficiency is broken.

(IV) The asset pricing model used to measure the abnormal returns (such as the CAPM) had mis-specification error so the returns may not be abnormal but rather fair for the level of risk.

Select the most correct response:

The following cash flows are expected:

- 10 yearly payments of $80, with the first payment in 3 years from now (first payment at t=3).
- 1 payment of $600 in 5 years and 6 months (t=5.5) from now.

What is the NPV of the cash flows if the discount rate is 10% given as an effective annual rate?

The following is the Dividend Discount Model used to price stocks:

### p_0=\frac{d_1}{r-g} ###

All rates are effective annual rates and the cash flows (##d_1##) are received every year. Note that the r and g terms in the above DDM could also be labelled as below: ###r = r_{\text{total, 0}\rightarrow\text{1yr, eff 1yr}}### ###g = r_{\text{capital, 0}\rightarrow\text{1yr, eff 1yr}}### Which of the following statements is **NOT** correct?

Which of the following investable assets are **NOT** suitable for valuation using PE multiples techniques?

One and a half years ago Frank bought a house for $**600,000**. Now it's worth only $**500,000**, based on recent similar sales in the area.

The expected total return on Frank's residential property is **7**% pa.

He rents his house out for $**1,600** per month, paid in advance. Every 12 months he plans to increase the rental payments.

The present value of 12 months of rental payments is $**18,617.27**.

The future value of 12 months of rental payments one year in the future is $**19,920.48**.

What is the expected annual **rental** yield of the property? Ignore the costs of renting such as maintenance, real estate agent fees and so on.

A firm plans to issue equity and use the cash raised to pay off its debt. No assets will be bought or sold. Ignore the costs of financial distress.

Which of the following statements is **NOT** correct, all things remaining equal?

**Question 584** option, option payoff at maturity, option profit

Which of the following statements about European call options on non-dividend paying stocks is **NOT** correct?

**Question 780** mispriced asset, NPV, DDM, market efficiency, no explanation

A company advertises an investment costing $**1,000** which they say is under priced. They say that it has an expected total return of **15**% pa, but a required return of only **10**% pa. Of the **15**% pa total expected return, the dividend yield is expected to be **4**% pa and the capital yield **11**% pa. Assume that the company's statements are correct.

What is the NPV of buying the investment if the 15% total return lasts for the next 100 years (t=0 to 100), then reverts to 10% after that time? Also, what is the NPV of the investment if the 15% return lasts forever?

In both cases, assume that the required return of 10% remains constant, the dividends can only be re-invested at 10% pa and all returns are given as effective annual rates. The answer choices below are given in the same order (15% for 100 years, and 15% forever):

**Question 975** comparative advantage in trade, production possibilities curve, no explanation

Arthur and Bindi are the only people on a remote island.

Luckily there are Coconut and Date palm trees on the island that grow delicious fruit. The problem is that harvesting the fruit takes a lot of work.

Arthur can pick 1 coconut per hour, 4 dates per hour or any linear combination of coconuts and dates. For example, he could pick 0.5 coconuts and 2 dates per hour.

Bindi can pick 2 coconuts per hour, 1 date per hour or any linear combination. For example, she could pick 0.5 coconuts and 0.75 dates per hour.

This information is summarised in the table and graph:

Harvest Rates Per Hour |
||

Coconuts | Dates | |

Arthur | 1 | 4 |

Bindi | 2 | 1 |

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