A wholesale horticulture nursery offers credit to its customers.
Customers are given 60 days to pay for their goods, but if they pay immediately they will get a 3% discount.
What is the effective interest rate implicit in the discount being offered? Assume 365 days in a year and that all customers pay either immediately or on the 60th day. All rates given below are effective annual rates.
A student just won the lottery. She won $1 million in cash after tax. She is trying to calculate how much she can spend per month for the rest of her life. She assumes that she will live for another 60 years. She wants to withdraw equal amounts at the beginning of every month, starting right now.
All of the cash is currently sitting in a bank account which pays interest at a rate of 6% pa, given as an APR compounding per month. On her last withdrawal, she intends to have nothing left in her bank account. How much can she withdraw at the beginning of each month?
Estimate the US bank JP Morgan's share price using a price earnings (PE) multiples approach with the following assumptions and figures only:
- The major US banks JP Morgan Chase (JPM), Citi Group (C) and Wells Fargo (WFC) are comparable companies;
- JP Morgan Chase's historical earnings per share (EPS) is $4.37;
- Citi Group's share price is $50.05 and historical EPS is $4.26;
- Wells Fargo's share price is $48.98 and historical EPS is $3.89.
Note: Figures sourced from Google Finance on 24 March 2014.
Question 558 portfolio weights, portfolio return, short selling
An investor wants to make a portfolio of two stocks A and B with a target expected portfolio return of 16% pa.
- Stock A has an expected return of 8% pa.
- Stock B has an expected return of 12% pa.
What portfolio weights should the investor have in stocks A and B respectively?
A semi-annual coupon bond has a yield of 3% pa. Which of the following statements about the yield is NOT correct? All rates are given to four decimal places.
Below is a graph of the USD against the JPY and EUR from 1980 to 2015, compiled by the RBA. Select the correct statement about what occurred between 1980 and 2015. Note that in 1980 the euro was around 1.3 USD per EUR and the Yen was around 250 JPY per USD.
Short selling is a way to make money from falling prices. In what order must the following steps be completed to short-sell an asset? Let Tom, Dick and Harry be traders in the share market.
- Step P: Purchase the asset from Harry.
- Step G: Give the asset to Tom.
- Step W: Wait and hope that the asset price falls.
- Step B: Borrow the asset from Tom.
- Step S: Sell the asset to Dick.
Select the statement with the correct order of steps.
A firm is about to conduct a 2-for-7 rights issue with a subscription price of $10 per share. They haven’t announced the capital raising to the market yet and the share price is currently $13 per share. Assume that every shareholder will exercise their rights, the cash raised will simply be put in the bank, and the rights issue is completed so quickly that the time value of money can be ignored. Disregard signalling, taxes and agency-related effects.
Which of the following statements about the rights issue is NOT correct? After the rights issue is completed:
Question 926 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate
The arithmetic average continuously compounded or log gross discrete return (AALGDR) on the ASX200 accumulation index over the 24 years from 31 Dec 1992 to 31 Dec 2016 is 9.49% pa.
The arithmetic standard deviation (SDLGDR) is 16.92 percentage points pa.
Assume that the log gross discrete returns are normally distributed and that the above estimates are true population statistics, not sample statistics, so there is no standard error in the sample mean or standard deviation estimates. Also assume that the standardised normal Z-statistic corresponding to a one-tail probability of 2.5% is exactly -1.96.
If you had a $1 million fund that replicated the ASX200 accumulation index, in how many years would the median dollar value of your fund first be expected to lie outside the 95% confidence interval forecast?