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 Profitability Index (PI) of the project?
Project Cash Flows | |
Time (yrs) | Cash flow ($) |
0 | -100 |
1 | 0 |
2 | 121 |
When using the dividend discount model to price a stock:
### p_{0} = \frac{d_1}{r - g} ###
The growth rate of dividends (g):
Question 241 Miller and Modigliani, leverage, payout policy, diversification, NPV
One of Miller and Modigliani's (M&M's) important insights is that a firm's managers should not try to achieve a particular level of leverage in a world with zero taxes and perfect information since investors can make their own leverage. Therefore corporate capital structure policy is irrelevant since investors can achieve their own desired leverage at the personal level by borrowing or lending on their own.
This principal of 'home-made' or 'do-it-yourself' leverage can also be applied to other topics. Read the following statements to decide which are true:
(I) Payout policy: a firm's managers should not try to achieve a particular pattern of equity payout.
(II) Agency costs: a firm's managers should not try to minimise agency costs.
(III) Diversification: a firm's managers should not try to diversify across industries.
(IV) Shareholder wealth: a firm's managers should not try to maximise shareholders' wealth.
Which of the above statement(s) are true?
Question 308 risk, standard deviation, variance, no explanation
A stock's standard deviation of returns is expected to be:
- 0.09 per month for the first 5 months;
- 0.14 per month for the next 7 months.
What is the expected standard deviation of the stock per year ##(\sigma_\text{annual})##?
Assume that returns are independently and identically distributed (iid) and therefore have zero auto-correlation.
Some financially minded people insist on a prenuptial agreement before committing to marry their partner. This agreement states how the couple's assets should be divided in case they divorce. Prenuptial agreements are designed to give the richer partner more of the couples' assets if they divorce, thus maximising the richer partner's:
Question 529 DDM, real and nominal returns and cash flows, inflation, real estate, no explanation
If housing rents are constrained from growing more than the maximum target inflation rate, and houses can be priced as a perpetuity of growing net rental cash flows, then what is the implication for house prices, all things remaining equal? Select the most correct answer.
Background: Since 1990, many central banks across the world have become 'inflation targeters'. They have adopted a policy of trying to keep inflation in a predictable narrow range, with the hope of encouraging long-term lending to fund more investment and maintain higher GDP growth.
Australia's central bank, the Reserve Bank of Australia (RBA), has specifically stated their inflation target range is between 2 and 3% pa.
Some Australian residential property market commentators suggest that because rental costs comprise a large part of the Australian consumer price index (CPI), rent costs across the nation cannot significantly exceed the maximum inflation target range of 3% pa without the prices of other goods growing by less than the target range for long periods, which is unlikely.
In 2014 the median starting salaries of male and female Australian bachelor degree accounting graduates aged less than 25 years in their first full-time industry job was $50,000 before tax, according to Graduate Careers Australia. See page 9 of this report. Personal income tax rates published by the Australian Tax Office are reproduced for the 2014-2015 financial year in the table below.
Taxable income | Tax on this income |
---|---|
0 – $18,200 | Nil |
$18,201 – $37,000 | 19c for each $1 over $18,200 |
$37,001 – $80,000 | $3,572 plus 32.5c for each $1 over $37,000 |
$80,001 – $180,000 | $17,547 plus 37c for each $1 over $80,000 |
$180,001 and over | $54,547 plus 45c for each $1 over $180,000 |
The above rates do not include the Medicare levy of 2%. Exclude the Medicare levy from your calculations
How much personal income tax would you have to pay per year if you earned $50,000 per annum before-tax?
Which one of the below option and futures contracts gives the possibility of potentially unlimited gains?
Question 948 VaR, expected shortfall
Below is a historical sample of returns on the S&P500 capital index.
S&P500 Capital Index Daily Returns Ranked from Best to Worst |
||
10,000 trading days from 4th August 1977 to 24 March 2017 based on closing prices. |
||
Rank | Date (DD-MM-YY) |
Continuously compounded daily return (% per day) |
1 | 21-10-87 | 9.23 |
2 | 08-03-83 | 8.97 |
3 | 13-11-08 | 8.3 |
4 | 30-09-08 | 8.09 |
5 | 28-10-08 | 8.01 |
6 | 29-10-87 | 7.28 |
… | … | … |
9980 | 11-12-08 | -5.51 |
9981 | 22-10-08 | -5.51 |
9982 | 08-08-11 | -5.54 |
9983 | 22-09-08 | -5.64 |
9984 | 11-09-86 | -5.69 |
9985 | 30-11-87 | -5.88 |
9986 | 14-04-00 | -5.99 |
9987 | 07-10-98 | -6.06 |
9988 | 08-01-88 | -6.51 |
9989 | 27-10-97 | -6.55 |
9990 | 13-10-89 | -6.62 |
9991 | 15-10-08 | -6.71 |
9992 | 29-09-08 | -6.85 |
9993 | 07-10-08 | -6.91 |
9994 | 14-11-08 | -7.64 |
9995 | 01-12-08 | -7.79 |
9996 | 29-10-08 | -8.05 |
9997 | 26-10-87 | -8.4 |
9998 | 31-08-98 | -8.45 |
9999 | 09-10-08 | -12.9 |
10000 | 19-10-87 | -23.36 |
Mean of all 10,000: | 0.0354 | |
Sample standard deviation of all 10,000: | 1.2062 | |
Sources: Bloomberg and S&P. | ||
Assume that the one-tail Z-statistic corresponding to a probability of 99.9% is exactly 3.09. Which of the following statements is NOT correct? Based on the historical data, the 99.9% daily: