A stock pays annual dividends which are expected to continue forever. It just paid a dividend of $10. The growth rate in the dividend is 2% pa. You estimate that the stock's required return is 10% pa. Both the discount rate and growth rate are given as effective annual rates. Using the dividend discount model, what will be the share price?
A firm can issue 5 year annual coupon bonds at a yield of 8% pa and a coupon rate of 12% pa.
The beta of its levered equity is 1. Five year government bonds yield 5% pa with a coupon rate of 6% pa. The market's expected dividend return is 4% pa and its expected capital return is 6% pa.
The firm's debt-to-equity ratio is 2:1. The corporate tax rate is 30%.
What is the firm's after-tax WACC? Assume a classical tax system.
Bonds X and Y are issued by different companies, but they both pay a semi-annual coupon of 10% pa and they have the same face value ($100) and maturity (3 years).
The only difference is that bond X and Y's yields are 8 and 12% pa respectively. Which of the following statements is true?
A four year bond has a face value of $100, a yield of 6% and a fixed coupon rate of 12%, paid semi-annually. What is its price?
Which one of the below option and futures contracts gives the possibility of potentially unlimited gains?
Question 811 log-normal distribution, mean and median returns, return distribution, arithmetic and geometric averages
Which of the following statements about probability distributions is NOT correct?
A one year European-style call option has a strike price of $4.
The option's underlying stock currently trades at $5, pays no dividends and its standard deviation of continuously compounded returns is 47% pa.
The risk-free interest rate is 10% pa continuously compounded.
Use the Black-Scholes-Merton formula to calculate the option price. The call option price now is:
Question 929 standard error, mean and median returns, mode return, return distribution, arithmetic and geometric averages, continuously compounding rate
The arithmetic average continuously compounded or log gross discrete return (AALGDR) on the ASX200 accumulation index over the 24 years from 31 Dec 1992 to 31 Dec 2016 is 9.49% pa.
The arithmetic standard deviation (SDLGDR) is 16.92 percentage points pa.
Assume that the data are sample statistics, not population statistics. Assume that the log gross discrete returns are normally distributed.
What is the standard error of your estimate of the sample ASX200 accumulation index arithmetic average log gross discrete return (AALGDR) over the 24 years from 1992 to 2016?
Question 1003 Black-Scholes-Merton option pricing, log-normal distribution, return distribution, hedge fund, risk, financial distress
A hedge fund issued zero coupon bonds with a combined $1 billion face value due to be paid in 3 years. The promised yield to maturity is currently 6% pa given as a continuously compounded return (or log gross discrete return, ##LGDR=\ln[P_T/P_0] \div T##).
The hedge fund owns stock assets worth $1.1 billion now which are expected to have a 10% pa arithmetic average log gross discrete return ##(\text{AALGDR} = \sum\limits_{t=1}^T{\left( \ln[P_t/P_{t-1}] \right)} \div T)## and 30pp pa standard deviation (SDLGDR) in the future.
Analyse the hedge fund using the Merton model of corporate equity as an option on the firm's assets.
The risk free government bond yield to maturity is currently 5% pa given as a continuously compounded return or LGDR.
Which of the below statements is NOT correct? All figures are rounded to the sixth decimal place.