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Question 4  DDM

For a price of $13, Carla will sell you a share which will pay a dividend of $1 in one year and every year after that forever. The required return of the stock is 10% pa.

Would you like to Carla's share or politely ?


Question 108  bond pricing, zero coupon bond, term structure of interest rates, forward interest rate

An Australian company just issued two bonds:

  • A 1 year zero coupon bond at a yield of 10% pa, and
  • A 2 year zero coupon bond at a yield of 8% pa.

What is the forward rate on the company's debt from years 1 to 2? Give your answer as an APR compounding every 6 months, which is how the above bond yields are quoted.



Question 159  bond pricing

A three year bond has a fixed coupon rate of 12% pa, paid semi-annually. The bond's yield is currently 6% pa. The face value is $100. What is its price?



Question 193  bond pricing, premium par and discount bonds

Which one of the following bonds is trading at par?



Question 358  PE ratio, Multiples valuation

Estimate the Chinese bank ICBC's share price using a backward-looking price earnings (PE) multiples approach with the following assumptions and figures only. Note that the renminbi (RMB) is the Chinese currency, also known as the yuan (CNY).

  • The 4 major Chinese banks ICBC, China Construction Bank (CCB), Bank of China (BOC) and Agricultural Bank of China (ABC) are comparable companies;
  • ICBC 's historical earnings per share (EPS) is RMB 0.74;
  • CCB's backward-looking PE ratio is 4.59;
  • BOC 's backward-looking PE ratio is 4.78;
  • ABC's backward-looking PE ratio is also 4.78;

Note: Figures sourced from Google Finance on 25 March 2014. Share prices are from the Shanghai stock exchange.



Question 636  option, option payoff at maturity, no explanation

Which of the below formulas gives the payoff ##(f)## at maturity ##(T)## from being long a call option? Let the underlying asset price at maturity be ##S_T## and the exercise price be ##X_T##.



Question 682  open interest, trade volume, future

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 708  continuously compounding rate, continuously compounding rate conversion

Convert a 10% continuously compounded annual rate ##(r_\text{cc annual})## into an effective annual rate ##(r_\text{eff annual})##. The equivalent effective annual rate is:



Question 885  foreign exchange rate, no explanation

A Brazilian lady wishes to convert 1 million Brazilian Real (BRL) into Chinese Renminbi (RMB, also called the Yuan or CNY). The exchange rate is 3.42 BRL per USD and 6.27 RMB per USD. How much is the BRL 1 million worth in RMB?



Question 991  NPV

The required return of a building project is 10%, given as an effective annual rate. Assume that the cash flows shown in the table are paid all at once at the given point in time.

The building firm is just about to start the project and the client has signed the contract. Initially the firm will pay $100 to the sub-contractors to carry out the work and then will receive an $11 payment from the client in one year and $121 when the project is finished in 2 years. Ignore credit risk.

But the building company is considering selling the project to a competitor at different points in time and is pondering the minimum price that they should sell it for.

Project Cash Flows
Time (yrs) Cash flow ($)
0 -100
1 11
2 121
 

Which of the below statements is NOT correct? The project is worth: