You really want to go on a back packing trip to Europe when you finish university. Currently you have $**1,500** in the bank. Bank interest rates are **8**% pa, given as an APR compounding per month. If the holiday will cost $**2,000**, how long will it take for your bank account to reach that amount?

A stock is expected to pay the following dividends:

Cash Flows of a Stock | ||||||

Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |

Dividend ($) | 0.00 | 1.15 | 1.10 | 1.05 | 1.00 | ... |

After year 4, the annual dividend will grow in perpetuity at -5% pa. Note that this is a negative growth rate, so the dividend will actually shrink. So,

- the dividend at t=5 will be ##$1(1-0.05) = $0.95##,
- the dividend at t=6 will be ##$1(1-0.05)^2 = $0.9025##, and so on.

The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates.

What will be the price of the stock in four and a half years (t = 4.5)?

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?

Which one of the following bonds is trading at par?

In mid 2009 the listed mining company Rio Tinto announced a 21-for-40 renounceable rights issue. Below is the chronology of events:

- 04/06/2009. Share price opens at $69.00 and closes at $66.90.
- 05/06/2009. 21-for-40 rights issue announced at a subscription price of $28.29.
- 16/06/2009. Last day that shares trade cum-rights. Share price opens at $76.40 and closes at $75.50.
- 17/06/2009. Shares trade ex-rights. Rights trading commences.

All things remaining equal, what would you expect Rio Tinto's stock price to open at on the first day that it trades ex-rights (17/6/2009)? Ignore the time value of money since time is negligibly short. Also ignore taxes.

You're considering making an investment in a particular company. They have preference shares, ordinary shares, senior debt and junior debt.

Which is the safest investment? Which will give the highest returns?

Being long a call and short a put which have the same exercise prices and underlying stock is equivalent to being:

**Question 850** gross domestic product, gross domestic product per capita, no explanation

Below is a table showing some countries’ GDP, population and GDP per capita.

Countries' GDP and Population |
|||

GDP | Population | GDP per capita | |

USD million | millions of people | USD | |

United States | 18,036,648 | 325 | 55,492 |

China | 11,158,457 | 1,383 | 8,066 |

Japan | 4,383,076 | 127 | 34,586 |

Germany | 3,363,600 | 83 | 40,623 |

Norway | 500,519 | 5 | 95,027 |

Source: "GDP and its breakdown at current prices in US Dollars" United Nations Statistics Division. December 2016.

Using this data only, which one of these countries’ citizens have the **highest living standards**?