For a price of $6, Carlos will sell you a share which will pay a dividend of $1 in one year and every year after that forever. The required return of the stock is 10% pa.

If a project's net present value (NPV) is zero, then its internal rate of return (IRR) will be:

A wholesale building supplies business offers credit to its customers. Customers are given 60 days to pay for their goods, but if they pay within 7 days they will get a 2% discount.

What is the effective interest rate implicit in the discount being offered?

Assume 365 days in a year and that all customers pay on either the 7th day or the 60th day. All rates given below are effective annual rates.

Which of the following investable assets are **NOT** suitable for valuation using PE multiples techniques?

**Question 415** income and capital returns, real estate, no explanation

You just bought a residential apartment as an investment property for $**500,000**.

You intend to rent it out to tenants. They are ready to move in, they would just like to know how much the monthly rental payments will be, then they will sign a twelve-month lease.

You require a total return of **8**% pa and a rental yield of **5**% pa.

What would the monthly paid-in-advance rental payments have to be this year to receive that 5% annual rental yield?

Also, if monthly rental payments can be increased each year when a new lease agreement is signed, by how much must you increase rents per year to realise the 8% pa total return on the property?

Ignore all taxes and the costs of renting such as maintenance costs, real estate agent fees, utilities and so on. Assume that there will be no periods of vacancy and that tenants will promptly pay the rental prices you charge.

Note that the first rental payment will be received at t=0. The first lease agreement specifies the first 12 equal payments from t=0 to 11. The next lease agreement can have a rental increase, so the next twelve equal payments from t=12 to 23 can be higher than previously, and so on forever.

**Question 455** income and capital returns, payout policy, DDM, market efficiency

A fairly priced **unlevered** firm plans to pay a dividend of $**1** next year (t=1) which is expected to grow by **3**% pa every year after that. The firm's required return on equity is **8**% pa.

The firm is thinking about reducing its future dividend payments by **10**% so that it can use the extra cash to invest in more projects which are expected to return **8**% pa, and have the same risk as the existing projects. Therefore, next year's dividend will be $**0.90**.

What will be the stock's new annual **capital** return (proportional increase in price per year) if the change in payout policy goes ahead?

Assume that payout policy is irrelevant to firm value and that all rates are effective annual rates.

**Question 550** fully amortising loan, interest only loan, APR, no explanation

Many Australian home loans that are interest-only actually require payments to be made on a fully amortising basis after a number of years.

You decide to borrow $**600,000** from the bank at an interest rate of **4.25**% pa for 25 years. The payments will be **interest-only** for the first **10** years (t=0 to 10 years), then they will have to be paid on a **fully amortising** basis for the last **15** years (t=10 to 25 years).

Assuming that interest rates will remain constant, what will be your monthly payments for the next 10 years from now, and then the next 15 years after that? The answer options are given in the same order.

A Brazilian lady wishes to convert 1 million Brazilian Real (BRL) into Chinese Renminbi (RMB, also called the Yuan or CNY). The exchange rate is **3.42** BRL per USD and **6.27** RMB per USD. How much is the BRL 1 million worth in RMB?

**Question 908** effective rate, return types, gross discrete return, return distribution, price gains and returns over time

For an asset's price to double from say $1 to $2 in one year, what must its gross discrete return (GDR) be? If the price now is ##P_0## and the price in one year is ##P_1## then the gross discrete return over the next year is:

###\text{GDR}_\text{annual} = \dfrac{P_1}{P_0}###