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 |

Portfolio Details | ||||||

Stock | Expected return |
Standard deviation |
Correlation ##(\rho_{A,B})## |
Dollars invested |
||

A | 0.1 | 0.4 | 0.5 | 60 | ||

B | 0.2 | 0.6 | 140 | |||

What is the standard deviation (not variance) of the above portfolio?

Three important classes of investable risky assets are:

- Corporate debt which has low total risk,
- Real estate which has medium total risk,
- Equity which has high total risk.

Assume that the correlation between total returns on:

- Corporate debt and real estate is 0.1,
- Corporate debt and equity is 0.1,
- Real estate and equity is 0.5.

You are considering investing all of your wealth in one or more of these asset classes. Which portfolio will give the lowest total risk? You are restricted from shorting any of these assets. Disregard returns and the risk-return trade-off, pretend that you are only concerned with minimising risk.

In the dividend discount model:

###P_0 = \dfrac{C_1}{r-g}###

The return ##r## is supposed to be the:

**Question 319** foreign exchange rate, monetary policy, American and European terms

Investors expect the Reserve Bank of Australia (RBA) to keep the policy rate steady at their next meeting.

Then unexpectedly, the RBA announce that they will increase the policy rate by 25 basis points due to fears that the economy is growing too fast and that inflation will be above their target rate of 2 to 3 per cent.

What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar is likely to:

The expression 'you have to spend money to make money' relates to which business decision?

**Question 547** PE ratio, Multiples valuation, DDM, income and capital returns, no explanation

A firm pays out all of its earnings as dividends. Because of this, the firm has no real growth in earnings, dividends or stock price since there is no re-investment back into the firm to buy new assets and make higher earnings. The dividend discount model is suitable to value this company.

The firm's revenues and costs are expected to increase by inflation in the foreseeable future. The firm has no debt. It operates in the services industry and has few physical assets so there is negligible depreciation expense and negligible net working capital required.

Which of the following statements about this firm's PE ratio is **NOT** correct? The PE ratio should:

Note: The inverse of x is 1/x.

**Question 572** bond pricing, zero coupon bond, term structure of interest rates, expectations hypothesis, forward interest rate, yield curve

In the below term structure of interest rates equation, all rates are effective annual yields and the numbers in subscript represent the years that the yields are measured over:

###(1+r_{0-3})^3 = (1+r_{0-1})(1+r_{1-2})(1+r_{2-3}) ###

Which of the following statements is **NOT** correct?