Which one of the following is NOT usually considered an 'investable' asset for long-term wealth creation?
Question 323 foreign exchange rate, monetary policy, American and European terms
The market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting.
As expected, the RBA increases the policy rate by 25 basis points.
What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar will:
Acquirer firm plans to launch a takeover of Target firm. The deal is expected to create a present value of synergies totaling $105 million. A scrip offer will be made that pays the fair price for the target's shares plus 75% of the total synergy value.
| Firms Involved in the Takeover | ||
| Acquirer | Target | |
| Assets ($m) | 6,000 | 700 |
| Debt ($m) | 4,800 | 400 |
| Share price ($) | 40 | 20 |
| Number of shares (m) | 30 | 15 |
Ignore transaction costs and fees. Assume that the firms' debt and equity are fairly priced, and that each firms' debts' risk, yield and values remain constant. The acquisition is planned to occur immediately, so ignore the time value of money.
Calculate the merged firm's share price and total number of shares after the takeover has been completed.
Question 449 personal tax on dividends, classical tax system
A small private company has a single shareholder. This year the firm earned a $100 profit before tax. All of the firm's after tax profits will be paid out as dividends to the owner.
The corporate tax rate is 30% and the sole shareholder's personal marginal tax rate is 45%.
The United States' classical tax system applies because the company generates all of its income in the US and pays corporate tax to the Internal Revenue Service. The shareholder is also an American for tax purposes.
What will be the personal tax payable by the shareholder and the corporate tax payable by the company?
What type of present value equation is best suited to value a residential house investment property that is expected to pay constant rental payments forever? Note that 'constant' has the same meaning as 'level' in this context.
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?
Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.
1. Alice buys a future from Bob.
2. Chris buys a future from Delta.
3. Bob buys a future from Chris.
These were the only trades made in this equity index future. What was the trading volume and what is the open interest?
Question 758 time calculation, fully amortising loan, no explanation
Two years ago you entered into a fully amortising home loan with a principal of $1,000,000, an interest rate of 6% pa compounding monthly with a term of 25 years.
Then interest rates suddenly fall to 4.5% pa (t=0), but you continue to pay the same monthly home loan payments as you did before. How long will it now take to pay off your home loan? Measure the time taken to pay off the home loan from the current time which is 2 years after the home loan was first entered into.
Assume that the lower interest rate was given to you immediately after the loan repayment at the end of year 2, which was the 24th payment since the loan was granted. Also assume that rates were and are expected to remain constant.
Below is a graph of 3 peoples’ utility functions, Mr Blue (U=W^(1/2) ), Miss Red (U=W/10) and Mrs Green (U=W^2/1000). Assume that each of them currently have $50 of wealth.
Which of the following statements about them is NOT correct?
(a) Mr Blue would prefer to invest his wealth in a well diversified portfolio of stocks rather than a single stock, assuming that all stocks had the same total risk and return.