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Question 28  DDM, income and capital returns

The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.

### P_{0} = \frac{C_1}{r_{\text{eff}} - g_{\text{eff}}} ###

What would you call the expression ## C_1/P_0 ##?



Question 132  bill pricing, simple interest rate

A 90-day Bank Accepted Bill (BAB) has a face value of $1,000,000. The simple interest rate is 10% pa and there are 365 days in the year. What is its price now?



Question 143  bond pricing, zero coupon bond, term structure of interest rates, forward interest rate

An Australian company just issued two bonds:

  • A 6-month zero coupon bond at a yield of 6% pa, and
  • A 12 month zero coupon bond at a yield of 7% pa.

What is the company's forward rate from 6 to 12 months? Give your answer as an APR compounding every 6 months, which is how the above bond yields are quoted.



Question 387  real option, option

One of the reasons why firms may not begin projects with relatively small positive net present values (NPV's) is because they wish to maximise the value of their:



Question 457  PE ratio, Multiples valuation

Which firms tend to have low forward-looking price-earnings (PE) ratios? Only consider firms with positive PE ratios.



Question 498  NPV, Annuity, perpetuity with growth, multi stage growth model

A business project is expected to cost $100 now (t=0), then pay $10 at the end of the third (t=3), fourth, fifth and sixth years, and then grow by 5% pa every year forever. So the cash flow will be $10.5 at the end of the seventh year (t=7), then $11.025 at the end of the eighth year (t=8) and so on perpetually. The total required return is 10℅ pa.

Which of the following formulas will NOT give the correct net present value of the project?



Question 613  debt terminology

You own a debt asset. Are you a or a ?


Question 719  mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate

A stock has an arithmetic average continuously compounded return (AALGDR) of 10% pa, a standard deviation of continuously compounded returns (SDLGDR) of 80% pa and current stock price of $1. Assume that stock prices are log-normally distributed. The graph below summarises this information and provides some helpful formulas.

graph

In one year, what do you expect the median and mean prices to be? The answer options are given in the same order.



Question 905  market capitalisation of equity, PE ratio, payout ratio

The below graph shows the computer software company Microsoft's stock price (MSFT) at the market close on the NASDAQ on Friday 1 June 2018.

Based on the screenshot above, which of the following statements about MSFT is NOT correct? MSFT's:



Question 942  dividend date, ex dividend date

To receive the dividend you must own the stock when the market closes on which date?