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.
The required return of a project is 10%, given as an effective annual rate.
What is the payback period of the project in years?
Assume that the cash flows shown in the table are received smoothly over the year. So the $121 at time 2 is actually earned smoothly from t=1 to t=2.
| Project Cash Flows | |
| Time (yrs) | Cash flow ($) |
| 0 | -100 |
| 1 | 11 |
| 2 | 121 |
You just signed up for a 30 year fully amortising mortgage with monthly payments of $1,000 per month. The interest rate is 6% pa which is not expected to change.
How much did you borrow? After 20 years, how much will be owing on the mortgage? The interest rate is still 6% and is not expected to change.
The covariance and correlation of two stocks X and Y's annual returns are calculated over a number of years. The units of the returns are in percent per annum ##(\% pa)##.
What are the units of the covariance ##(\sigma_{X,Y})## and correlation ##(\rho_{X,Y})## of returns respectively?
Hint: Visit Wikipedia to understand the difference between percentage points ##(\text{pp})## and percent ##(\%)##.
Which of the following statements about call options is NOT correct?
Question 859 money supply, no explanation
The below table shows Australian monetary aggregates. Note that ‘M3’ is the sum of all the figures in the table and ‘ADI’ stands for Authorised Deposit-taking Institution such as a bank, building society or credit union.
| Australian Monetary Aggregates | ||||||
| March 2017, AUD billions | ||||||
| Currency | Current deposits with banks |
Certificates of deposit issued by banks |
Term deposits with banks |
Other deposits with banks |
Deposits with non-bank ADIs |
M3 |
| 69.3 | 271.6 | 207.2 | 562.3 | 838.7 | 36.9 | 1986.0 |
Source: RBA Statistical Table D3 Monetary Aggregates.
Which of the following statements is NOT correct?
Question 892 foreign exchange reserve, foreign exchange rate, no explanation
The Chinese central bank has the largest amount of foreign currency reserves.
What could the large amounts of foreign exchange reserves held by the Chinese government be used for in a currency crisis? China's currency is called the Renminbi (RMB) or Yuan (CNY). In a Chinese currency crisis the Chinese government is likely to use its FX reserves to:
Question 897 comparative advantage in trade, production possibilities curve, no explanation
Adam and Bella are the only people on a remote island. Their production possibility curves are shown in the graph.
Which of the following statements is NOT correct?
Question 990 Multiples valuation, EV to EBITDA ratio, enterprise value
A firm has:
2 million shares;
$200 million EBITDA expected over the next year;
$100 million in cash (not included in EV);
1/3 market debt-to-assets ratio is (market assets = EV + cash);
4% pa expected dividend yield over the next year, paid annually with the next dividend expected in one year;
2% pa expected dividend growth rate;
40% expected payout ratio over the next year;10 times EV/EBITDA ratio.
30% corporate tax rate.
The stock can be valued using the EV/EBITDA multiple, dividend discount model, Gordon growth model or PE multiple. Which of the below statements is NOT correct based on an EV/EBITDA multiple valuation?