A three year project's NPV is negative. The cash flows of the project include a negative cash flow at the very start and positive cash flows over its short life. The required return of the project is 10% pa. Select the most correct statement.
Below are 4 option graphs. Note that the y-axis is payoff at maturity (T). What options do they depict? List them in the order that they are numbered.
In late 2003 the listed bank ANZ announced a 2-for-11 rights issue to fund the takeover of New Zealand bank NBNZ. Below is the chronology of events:
- 23/10/2003. Share price closes at $18.30.
- 24/10/2003. 2-for-11 rights issue announced at a subscription price of $13. The proceeds of the rights issue will be used to acquire New Zealand bank NBNZ. Trading halt announced in morning before market opens.
- 28/10/2003. Trading halt lifted. Last (and only) day that shares trade cum-rights. Share price opens at $18.00 and closes at $18.14.
- 29/10/2003. Shares trade ex-rights.
All things remaining equal, what would you expect ANZ's stock price to open at on the first day that it trades ex-rights (29/10/2003)? Ignore the time value of money since time is negligibly short. Also ignore taxes.
One and a half years ago Frank bought a house for $600,000. Now it's worth only $500,000, based on recent similar sales in the area.
The expected total return on Frank's residential property is 7% pa.
He rents his house out for $1,600 per month, paid in advance. Every 12 months he plans to increase the rental payments.
The present value of 12 months of rental payments is $18,617.27.
The future value of 12 months of rental payments one year in the future is $19,920.48.
What is the expected annual rental yield of the property? Ignore the costs of renting such as maintenance, real estate agent fees and so on.
A firm has 1 million shares which trade at a price of $30 each. The firm is expected to announce earnings of $3 million at the end of the year and pay an annual dividend of $1.50 per share.
What is the firm's (forward looking) price/earnings (PE) ratio?
You have $100,000 in the bank. The bank pays interest at 10% pa, given as an effective annual rate.
You wish to consume twice as much now (t=0) as in one year (t=1) and have nothing left in the bank at the end.
How much can you consume at time zero and one? The answer choices are given in the same order.
The current gold price is $700, gold storage costs are 2% pa and the risk free rate is 10% pa, both with continuous compounding.
What should be the 3 year gold futures price?
A stock has a beta of 1.5. The market's expected total return is 10% pa and the risk free rate is 5% pa, both given as effective annual rates.
In the last 5 minutes, bad economic news was released showing a higher chance of recession. Over this time the share market fell by 1%. The risk free rate was unchanged.
What do you think was the stock's historical return over the last 5 minutes, given as an effective 5 minute rate?
Question 727 inflation, real and nominal returns and cash flows
The Australian Federal Government lends money to domestic students to pay for their university education. This is known as the Higher Education Contribution Scheme (HECS). The nominal interest rate on the HECS loan is set equal to the consumer price index (CPI) inflation rate. The interest is capitalised every year, which means that the interest is added to the principal. The interest and principal does not need to be repaid by students until they finish study and begin working.
Which of the following statements about HECS loans is NOT correct?