The required return of a 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.
What is the Net Present Value (NPV) of the project?
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -100 |
| 1 | 0 |
| 2 | 121 |
A stock pays annual dividends. It just paid a dividend of $3. The growth rate in the dividend is 4% 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?
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 has the highest expected returns?
Question 444 investment decision, corporate financial decision theory
The investment decision primarily affects which part of a business?
Total cash flows can be broken into income and capital cash flows.
What is the name given to the cash flow generated from selling shares at a higher price than they were bought?
Question 539 debt terminology, fully amortising loan, bond pricing
A 'fully amortising' loan can also be called a:
Question 727 inflation, real and nominal returns and cash flows
The Australian Federal Government lends money to domestic students to pay for their university education. This is known as the Higher Education Contribution Scheme (HECS). The nominal interest rate on the HECS loan is set equal to the consumer price index (CPI) inflation rate. The interest is capitalised every year, which means that the interest is added to the principal. The interest and principal does not need to be repaid by students until they finish study and begin working.
Which of the following statements about HECS loans is NOT correct?
Question 792 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate, log-normal distribution, confidence interval
A risk manager has identified that their investment fund’s continuously compounded portfolio returns are normally distributed with a mean of 10% pa and a standard deviation of 40% pa. The fund’s portfolio is currently valued at $1 million. Assume that there is no estimation error in the above figures. To simplify your calculations, all answers below use 2.33 as an approximation for the normal inverse cumulative density function at 99%. All answers are rounded to the nearest dollar. Assume one month is 1/12 of a year. Which of the following statements is NOT correct?
A graph of assets’ expected returns ##(\mu)## versus standard deviations ##(\sigma)## is given in the below diagram.
Each letter corresponds to a separate coloured area. The portfolios at the boundary of the areas, on the black lines, are excluded from each area. Assume that all assets represented in this graph are fairly priced, and that all risky assets can be short-sold.
Which of the following statements about this graph and Markowitz portfolio theory is NOT correct?
Question 975 comparative advantage in trade, production possibilities curve, no explanation
Arthur and Bindi are the only people on a remote island.
Luckily there are Coconut and Date palm trees on the island that grow delicious fruit. The problem is that harvesting the fruit takes a lot of work.
Arthur can pick 1 coconut per hour, 4 dates per hour or any linear combination of coconuts and dates. For example, he could pick 0.5 coconuts and 2 dates per hour.
Bindi can pick 2 coconuts per hour, 1 date per hour or any linear combination. For example, she could pick 0.5 coconuts and 0.75 dates per hour.
This information is summarised in the table and graph:
| Harvest Rates Per Hour | ||
| Coconuts | Dates | |
| Arthur | 1 | 4 |
| Bindi | 2 | 1 |
Which of the following statements is NOT correct?