Fight Finance

A two year Government bond has a face value of $100, a yield of 2.5% pa and a fixed coupon rate of 0.5% pa, paid semi-annually. What is its price?

Stock A has a beta of 0.5 and stock B has a beta of 1. Which statement is NOT correct?

You are an equities analyst trying to value the equity of the Australian telecoms company Telstra, with ticker TLS. In Australia, listed companies like Telstra tend to pay dividends every 6 months. The payment around August is called the final dividend and the payment around February is called the interim dividend. Both occur annually.

• Today is mid-March 2015.
• TLS's last interim dividend of $0.15 was one month ago in mid-February 2015.
• TLS's last final dividend of $0.15 was seven months ago in mid-August 2014.

Judging by TLS's dividend history and prospects, you estimate that the nominal dividend growth rate will be 1% pa. Assume that TLS's total nominal cost of equity is 6% pa. The dividends are nominal cash flows and the inflation rate is 2.5% pa. All rates are quoted as nominal effective annual rates. Assume that each month is exactly one twelfth (1/12) of a year, so you can ignore the number of days in each month.

Calculate the current TLS share price.

Estimate the French bank Societe Generale's share price using a backward-looking price earnings (PE) multiples approach with the following assumptions and figures only. Note that EUR is the euro, the European monetary union's currency.

• The 4 major European banks Credit Agricole (ACA), Deutsche Bank AG (DBK), UniCredit (UCG) and Banco Santander (SAN) are comparable companies to Societe Generale (GLE);
• Societe Generale's (GLE's) historical earnings per share (EPS) is EUR 2.92;
• ACA's backward-looking PE ratio is 16.29 and historical EPS is EUR 0.84;
• DBK's backward-looking PE ratio is 25.01 and historical EPS is EUR 1.26;
• SAN's backward-looking PE ratio is 14.71 and historical EPS is EUR 0.47;
• UCG's backward-looking PE ratio is 15.78 and historical EPS is EUR 0.40;

Note: Figures sourced from Google Finance on 27 March 2015.

In the below term structure of interest rates equation, all rates are effective annual yields and the numbers in subscript represent the years that the yields are measured over:

###(1+r_{0-3})^3 = (1+r_{0-1})(1+r_{1-2})(1+r_{2-3}) ###

Which of the following statements is NOT correct?

Which of the following statements about yield curves is NOT correct?

Radio-Rentals.com offers the Apple iphone 5S smart phone for rent at $12.95 per week paid in advance on a 2 year contract. After renting the phone, you must return it to Radio-Rentals.

Kogan.com offers the Apple iphone 5S smart phone for sale at $699. You estimate that the phone will last for 3 years before it will break and be worthless.

Currently, the effective annual interest rate is 11.351%, the effective monthly interest rate 0.9% and the effective weekly interest rate is 0.207%. Assume that there are exactly 52 weeks per year and 12 months per year.

Find the equivalent annual cost of renting the phone and also buying the phone. The answers below are listed in the same order.

Which of the following quantities from the Black-Scholes-Merton option pricing formula gives the risk-neutral probability that a European call option will be exercised?

In the ‘Nixon Shock’ on August 15, 1971, the United States government:

The present value of an annuity of 3 annual payments of $5,000 in arrears (at the end of each year) is $12,434.26 when interest rates are 10% pa compounding annually.

If the same amount of $12,434.26 is put in the bank at the same interest rate of 10% pa compounded annually and the same cash flow of $5,000 is withdrawn at the end of every year, how much money will be in the bank in 3 years, just after that third $5,000 payment is withdrawn?