Fight Finance

(a) $27.7567

(b) $24.1226

(c) $23.5680

(d) $22.4457

(e) $3.6341

(a) Expected future growth rate of the dividend.

(b) Actual historical growth rate of the dividend.

(c) Expected future growth rate of the total required return on equity r.

(d) Actual historical growth rate of the market share price.

(e) Actual historical growth rate of the return on equity (ROE) defined as (Net Income / Owners Equity).

(a) Long call options.

(b) Short call options.

(c) Long put options.

(d) Short put options.

(e) No option positions have the possibility of unlimited potential losses.

(a) The NPV is zero.

(b) The IRR is 10% pa, equal to the 10% cost of capital.

(c) The payback period is two years assuming that the whole $12.1m cash flow occurs at t=2, or 1.826 years if the $12.1m cash flow is paid smoothly over the second year.

(d) The project could be accepted or rejected, the owners would be indifferent.

(e) If the project is accepted then the market value of the firm's assets will increase by $2.1m more than it would otherwise if the project was rejected.

(a) ##r_{0-3}## is the three year spot rate, given as an effective annual rate.

(b) ##r_{0-1}## is the one year forward rate, given as an effective annual rate.

(c) ##r_{1-2}## is the one year forward rate one year ahead, given as an effective annual rate.

(d) ##r_{2-3}## is the one year forward rate two years ahead, given as an effective annual rate.

(e) ##r_{1-3} = \left((1+r_{1-2})(1+r_{2-3})\right)^{1/2}-1## is the two year forward rate, one year ahead, given as an effective annual rate.

(a) Equity futures prices tend to be higher than spot prices. This is called contango.

(b) Equity futures prices tend to be equal to spot prices.

(c) Equity futures are generally under-priced.

(d) Equity futures are generally over-priced.

(e) Long equity futures traders tend to make more money than short equity futures traders.

If the Reserve Bank of Australia is expected to keep its interbank overnight cash rate at 2% pa while the US Federal Reserve is expected to keep its federal funds rate at 0% pa over the next year, is the AUD is expected to , , or remain against the USD over the next year?

(a) Less than its expected total return.

(b) Equal to its expected total return.

(c) More than its expected total return.

(d) More than its coupon rate.

(e) Equal to its coupon rate.

(a) Mr Blue and Miss Red prefer more wealth to less.

(b) Mrs Green enjoys losing wealth.

(c) Mr Blue is risk averse.

(d) Miss Red is risk neutral.

(e) Mrs Green is risk averse.

(a) The number of shares will rise by 2/7 or around 28.5714%.

(b) The share price will fall by 2/7 or around 28.5714%.

(c) If you don't take part in the rights issue and it's non-renounceable, you will lose around $0.6667 per share.

(d) The firm’s market capitalisation of equity will rise by 20/91 or around 21.9780%.

(e) The company will have more cash.