A stock is expected to pay the following dividends:
| Cash Flows of a Stock | ||||||
| Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |
| Dividend ($) | 0.00 | 1.15 | 1.10 | 1.05 | 1.00 | ... |
After year 4, the annual dividend will grow in perpetuity at -5% pa. Note that this is a negative growth rate, so the dividend will actually shrink. So,
- the dividend at t=5 will be ##$1(1-0.05) = $0.95##,
- the dividend at t=6 will be ##$1(1-0.05)^2 = $0.9025##, and so on.
The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates.
What will be the price of the stock in four and a half years (t = 4.5)?
Question 322 foreign exchange rate, monetary policy, American and European terms
The market expects the Reserve Bank of Australia (RBA) to decrease the policy rate by 25 basis points at their next meeting.
Then unexpectedly, the RBA announce that they will decrease the policy rate by 50 basis points due to fears of a recession and deflation.
What do you expect to happen to Australia's exchange rate? The Australian dollar will:
Which of the following investable assets is the LEAST suitable for valuation using PE multiples techniques?
The following cash flows are expected:
- 10 yearly payments of $80, with the first payment in 6.5 years from now (first payment at t=6.5).
- A single payment of $500 in 4 years and 3 months (t=4.25) from now.
What is the NPV of the cash flows if the discount rate is 10% given as an effective annual rate?
What is the correlation of a variable X with itself?
The corr(X, X) or ##\rho_{X,X}## equals:
Question 748 income and capital returns, DDM, ex dividend date
A stock will pay you a dividend of $2 tonight if you buy it today.
Thereafter the annual dividend is expected to grow by 3% pa, so the next dividend after the $2 one tonight will be $2.06 in one year, then in two years it will be $2.1218 and so on. The stock's required return is 8% pa.
What is the stock price today and what do you expect the stock price to be tomorrow, approximately?
Question 831 option, American option, no explanation
Which of the following statements about American-style options is NOT correct? American-style:
Calculate Australia’s GDP over the 2016 calendar year using the below table:
| Australian Gross Domestic Product Components | ||||
| A$ billion, 2016 Calendar Year from 1 Jan 2016 to 31 Dec 2016 inclusive | ||||
| Consumption | Investment | Government spending | Exports | Imports |
| 971 | 421 | 320 | 328 | 344 |
Source: ABS 5206.0 Australian National Accounts: National Income, Expenditure and Product. Table 3. Expenditure on Gross Domestic Product (GDP), Current prices.
Over the 2016 calendar year, Australia’s GDP was:
Question 929 standard error, mean and median returns, mode return, 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 data are sample statistics, not population statistics. Assume that the log gross discrete returns are normally distributed.
What is the standard error of your estimate of the sample ASX200 accumulation index arithmetic average log gross discrete return (AALGDR) over the 24 years from 1992 to 2016?